Legal Analysis on Levy of Customs Duty on Non-Excisable Goods Sold in Domestic Tariff Area by an EOU

Delve into a comprehensive legal analysis where the court examines the application of customs duty on non-excisable goods sold in the Domestic Tariff Area by an Export Oriented Unit. The judgment scrutinizes the statutory provisions and notifications surrounding duty-free imports for EOUs, highlighting the implications for units involved in DTA sales. Stay tuned to understand the intricacies of the court’s legal interpretation in this complex case.


  • The appellant, a 100% Export Oriented Unit, is involved in the production of cut flowers and flower buds.
  • The appellant’s products are suitable for bouquets and ornamental purposes.
  • The Customs, Excise & Service Tax Appellate Tribunal confirmed the customs duty levied on the sale of cut flowers within the Domestic Tariff Area.
  • The appellant’s appeal challenges Final Order No. C/203/08 dated 17.7.2008 passed by the Tribunal.

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  • Customs duty charged on non-excisable goods from an EOU in India sold in the DTA
  • Amendment in Notification No 56/01-Cus dated 18.05.2001 affecting duty determination on inputs

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  • Appellant argues that no excise duty can be levied on non-excisable goods like cut flowers sold in DTA as per Paragraph 3 of the exemption notification.
  • Customs duty is leviable on imported inputs in case of non-excisable goods.
  • Appellant relies on CESTAT and Central Excise and Gold (Control) Appellate Tribunal decisions to support their argument.
  • Appellant claims that the amendment notification is clarificatory and should apply retrospectively.
  • Customs duty cannot be levied on home-grown cut flowers, hence the demand of customs duty is invalid.
  • Appellant cites Circular No 31/2001-Cus which highlights the disadvantage faced by floriculture EOUs due to customs duty on inputs.
  • Amendment notification was issued to harmonize central excise and customs notifications.
  • Appellant relies on the Constitution Bench decision and another Supreme Court decision to argue for retrospective effect and clarification of legislative intent.
  • Respondent argues that the customs duty was correctly levied on the DTA sales made, which were in breach of the EXIM policy.
  • Respondent claims that the appellant had no permission to clear goods in DTA from the Development Commissioner.
  • Respondent points out that the amendment is a substantive change seen in the CBEC Circular, which speaks of ‘carrying out’ the amendment.
  • Respondent makes reference to a court decision stating that a remedial provision cannot be construed as clarificatory or declaratory and must be applied prospectively.

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  • The judgement discusses the applicability of Section 28 of the Customs Act in relation to the production and sale of cut-flowers by an EOU.
  • The appellant, an EOU, made DTA sales of cut-flowers without obtaining approval from the Development Commissioner and not maintaining the requisite net foreign exchange earnings.
  • The EOU was found to have contravened provisions of the Export & Import Policy and Notification No. 126/94-CUS by making DTA sales without permission.
  • The demand for customs duty on the imported inputs used in the production of the cut-flowers was justified, as per the judgment.
  • The amendment to the notification regarding levy of customs duty on non-excisable goods was found to have prospective effect only and cannot be applied retrospectively.
  • The analysis also includes the interpretation of various statutory provisions and notifications governing duty-free import for EOUs and the implications for EOU units selling goods in the DTA.
  • Declaratory statutes are usually retrospective and contain a Preamble and the words ‘declared’ and ‘enacted.’
  • Exemption clauses must be strictly construed, with any ambiguity benefiting the State.
  • Mandatory conditions of exemption notifications must be obeyed precisely, but some leniency may be shown for directory requirements.
  • A person seeking exemption from tax liability must clearly prove eligibility, with any doubt benefiting the State.
  • Declaratory Acts are passed to remove doubts about common law or statutes’ meanings.
  • Legislation granting benefits without corresponding detriments must be interpreted based on the clear language used.
  • A person claiming exemption or concession must prove entitlement to it.
  • Goods produced in an Export Oriented Unit (EOU) cannot be treated as imported goods subject to customs duty.
  • Declaratory Acts aim to correct judicial errors regarding common law or statutory interpretations.
  • Amendments to laws are considered remedial rather than clarificatory if they seek to take away previously accrued rights and liabilities.
  • The ground finds support in the decision of a larger bench of the CEGAT in the case of Vikram Ispat.
  • The appellant relies upon this decision.
  • Levy and collection of excise duty on excisable goods produced or manufactured in India as per rates in First Schedule of Central Excise Tariff Act, 1985
  • Special duty of excise to be levied on excisable goods specified in Second Schedule of Central Excise Tariff Act, 1985
  • Special duty of excise to be in addition to the duty of excise specified in the First Schedule
  • Provision for duties of excise on goods produced in free trade zone or by a hundred per cent export-oriented undertaking and sold in India
  • Burden of proving mala fide conduct is on the revenue, and specific averments must be in the show cause notice.
  • Appellant issued show cause notice for suppressing DTA sales of cut flowers to evade duty.
  • Failure to seek prior approval from Development Commissioner for duty on DTA sales raises suspicion of ‘wilful’ suppression.
  • Appellant’s claim of not using imported inputs contradicted by importing greenhouse equipment and raw materials.
  • Burden of proving otherwise rested on the appellant, which they failed to do.
  • Authorities rightly invoked Section 28 of the 1962 Act for levying customs duty.
  • CESTAT upheld the levy of customs duty.
  • Appeal is dismissed with no costs.
  • Pending applications, if any, disposed of.


Case Number: C.A. No.-007157-007157 / 2008

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