Minimum Import Price Cannot Be Applied To DTA Clearances By 100% EOUs Without Proof Of Undervaluation: CESTAT
Pranav B Prem
The Customs, Excise and Service Tax Appellate Tribunal, Ahmedabad has held that the Minimum Import Price prescribed by the Directorate General of Foreign Trade for imported goods cannot be applied to enhance the assessable value of granite slabs and tiles cleared by a 100% Export Oriented Unit into the Domestic Tariff Area, in the absence of any evidence of undervaluation. The Bench comprising Somesh Arora (Judicial Member) and Satendra Vikram Singh (Technical Member) partly allowed the appeal filed by Exotic Granite LLP and set aside the larger part of the duty demand confirmed by the adjudicating authority.
Exotic Granite LLP, a 100% EOU situated in Kutch, is engaged in the manufacture of polished granite slabs and tiles classifiable under Chapter Heading 68029300 of the Central Excise Tariff Act. During scrutiny of its records, the Department alleged that the assessee had undervalued polished granite cleared into the Domestic Tariff Area. The allegation was founded on DGFT Notification No. 38(RE-2013)/2009-2014 dated 26 August 2013, which prescribed that import of certain granite products would be freely permitted only if the CIF value was USD 80 or above per square metre. According to the Department, since the assessee’s DTA sale prices were below this benchmark, the assessable value declared by it was understated.
The Department also noticed that the assessee had been granted advance DTA sale permission by the Development Commissioner for a total value of ₹550 lakh subject to specified conditions, including execution of a differential duty bond and clearances only to those DTA units holding import authorisation from DGFT. It was alleged that such advance DTA sales fell under paragraph 6.8(k) of the Foreign Trade Policy and therefore did not qualify for concessional duty under Notification No. 23/2003-CE, which covered only certain specified categories of DTA sales.
A show cause notice was thereafter issued demanding excise duty of ₹3,62,43,148 along with interest and penalty. By the impugned order, the Commissioner confirmed the entire demand, imposed interest and also levied an equal penalty. This led the assessee to approach the Tribunal.
Before the Tribunal, the assessee contended that DTA clearances by a 100% EOU cannot be equated with imports, since the finished goods were manufactured in India and were liable to excise duty under Section 3 of the Central Excise Act. It was argued that although the duty is computed with reference to customs duties leviable on like imported goods, the valuation still has to be carried out in accordance with Section 14 of the Customs Act read with the Customs Valuation Rules, and not on the basis of a DGFT notification prescribing minimum import price for imported goods.
The assessee further argued that it had imported rough granite blocks and not polished granite slabs falling under the heading covered by the DGFT notification. It was also submitted that there was no allegation or evidence of any manipulation in the transaction value charged by the assessee to independent buyers. According to the assessee, in the absence of any such evidence, the declared transaction value could not be rejected merely because it was lower than the Minimum Import Price fixed for imports.
On the second issue, the assessee contended that the demand of ₹28.59 lakh relating to advance DTA sales for 2014-15 was barred by limitation. It pointed out that the permission granted by the Development Commissioner had been marked to the jurisdictional excise authorities and that the Department was therefore fully aware of the clearances made under the permission.
The Revenue, on the other hand, argued that the assessee had sold granite slabs and tiles in the Domestic Tariff Area at prices significantly lower than the Minimum Import Price of USD 80 per square metre fixed by DGFT. It was further contended that advance DTA sales under paragraph 6.8(k) of the Foreign Trade Policy were not covered by Notification No. 23/2003-CE and therefore concessional duty had been wrongly availed.
The Tribunal first examined whether the DGFT notification fixing Minimum Import Price could be adopted as the assessable value for DTA clearances made by the EOU. It observed that under the proviso to Section 3(1) of the Central Excise Act, the value of goods cleared by a 100% EOU into DTA has to be determined in accordance with the Customs Act and Customs Tariff Act. Thus, the applicable valuation mechanism was Section 14 of the Customs Act read with the Customs Valuation Rules.
The Bench found that the Department had enhanced the assessable value solely on the basis of the DGFT notification prescribing minimum import price and had produced no evidence of manipulation of the transaction value. The Tribunal noted that the sales were made to independent buyers and that price was the sole consideration. In these circumstances, there was no legal basis to reject the declared transaction value.
Relying on the earlier decision in Cristal Granites and Marbles Pvt. Ltd., the Tribunal reiterated that the minimum import price fixed for imports cannot automatically be treated as either the cost of raw material or the basis for fixing the sale price of goods cleared into the domestic market. It quoted the earlier ruling that, “The minimum import price fixed for imports cannot be automatically considered as cost of raw material imported by the importer. The price in the domestic market is driven by lot of factors and when the transaction is between the appellant and unrelated buyer there are no reasons to doubt the said value.”
The Tribunal also distinguished the judgments relied upon by the Department. It noted that the decision in Tungbhadra Special Products dealt with a different issue, namely whether the process undertaken amounted to manufacture, while Hindustan Granites v. Union of India concerned the power of DGFT to issue policy circulars and notifications, not the valuation of DTA clearances made by EOUs.
Accordingly, the Tribunal held that the larger demand of ₹3,33,83,762 based on alleged undervaluation by reference to the DGFT Minimum Import Price was unsustainable and set it aside.
The Tribunal then considered the issue of concessional duty on advance DTA sales. It observed that Notification No. 23/2003-CE made concessional duty available only to goods cleared into DTA in accordance with specific sub-paragraphs of paragraph 6.8 of the Foreign Trade Policy. Since the assessee’s advance DTA sales had been permitted under paragraph 6.8(k), such clearances did not fall within the categories eligible for concessional duty under the notification.
The Bench also noted that the permission granted by the Development Commissioner was expressly made operable only after execution of a differential duty bond with the jurisdictional excise authorities. The assessee had admittedly failed to execute this bond. The Tribunal further found that in its ER-2 returns, the assessee had merely referred to paragraph 6.8 of the FTP and had suppressed the specific fact that the clearances were under paragraph 6.8(k). The image of the ER-2 return on page 14 also reflected only a general reference to para 6.8 in the column relating to the FTP provision under which goods were cleared into DTA.
In these circumstances, the Tribunal rejected the assessee’s plea of limitation and held that the extended period had been rightly invoked for this component of the demand. Relying on Bony Polymers Pvt. Ltd., it held that non-fulfilment of the conditions of the notification disentitled the assessee from concessional duty.
The Tribunal therefore upheld the smaller duty demand of ₹28,59,386 along with applicable interest. However, it set aside the penalty imposed under Section 11AC, observing that the assessee had informed the Department about the advance DTA permission and its conditions, which showed absence of mens rea. Accordingly, the appeal was partly allowed. The Tribunal set aside the major duty demand of ₹3.33 crore based on application of the DGFT Minimum Import Price, but sustained the smaller duty demand of ₹28.59 lakh with interest while removing the penalty.
Cause Title: Exotic Granite LLP v. Commissioner of Central Excise, Kutch
Case Number: Excise Appeal No. 10498 of 2020-DB
Coram: Somesh Arora (Judicial Member) and Satendra Vikram Singh (Technical Member)
