COMMISSIONER OF CENTRAL EXCISEversusM/S NESTLE INDIA LIMITED

                          [2015] 12 S.C.R. 222


    A           COMMISSIONER OF CENTRAL EXCISE
                                    v.
                       M/S NESTLE INDIA LIMITED
                      (Civil Appeal No. 951 of 2008)
    B
                          NOVEMBER 24, 2015
                 [A. K. SIKRI AND R. F. NARIMAN, JJ.)
            Central Excise Valuation (Determination of Price of
    c Excisable Goods) Rules, 2000: r.8 - Clearance of product
      manufactured out of indigenous raw materials to sister units
      on payment of duty in terms of Notification no.8197 and 231
      2003 by assessee, a 100% EOU - Basis of valuation whether
      FOB value of export of similar goods or cost of production u/
    O r. 8 of rules - Held: Since the exemption notifications are
      applicable and since what has to be determined under the
      said notifications is excise duty payable in India, such duty
      could only be arrived at by applying r.8 in cases of captive
      consumption- Central Excise Act, 1944-s.3(1) proviso (ii).
    E
             Dismissing the appeal, the Court

            HELD: 1. Section 5A under which the relevant
      exemption notifications were issued states in the proviso
    F that no exemption shall apply to excisable goods which
      are produced or manufactured by a 100% Export
      Oriented Undertaking and brought to any place in India
      unless specifically provided in such exemption
      notification. In notification no.8/97 dated 1.3.1997, there
.   G is specific provision for exemption of certain goods
      produced in a 100% EOU wholly from raw materials
      produced or manufactured in India. It is not disputed by
      the revenue that the instant tea manufactured by the
      respondent would be covered being a finished product
    H specified in the schedule to the Central Excise Tariff Act.
                                   222
 COMMISSIONER OF CENTRAL EXCISE v. M/S NESTLE 223
                 INDIA LIMITED

Further, the notification goes on to state that the said A
tea should be "allowed to be sold" in India in accordance
with the relevant EXIM policy. It further goes on to state
that the exemption from payment of the duty of excise
that is leviable thereunder under Section 3 is what is
payable in excess of an amount equal to the duty of B
excise leviable on like goods produced or manufactured ·
                                                           •
in India produced in an undertaking other than in a 100%
Export Oriented Undertaking, if sold in India. It is clear
that the object of the notification is that so far as the
product in question is concerned, so long as it is C
manufactured by a 100% EOU out of wholly indigenous
raw materials and so long as it is allowed to be sold in
India, the duty payable should only be the duty of excise
that is payable on like goods manufactured or produced
                                                             0
and sold in India by undertakings which are not 100%
EOUs~ [Para 14-15] [230-G-H; 231-A-E]

      2. There is no doubt whatsoever that the duty of
excise leviable under Section 3 would be on the basis of
the value of like goods produced or manufactured                E
outside India as determinable in accordance with the
provisions of the Customs Act, 1962 and the Customs
Tariff Act, 1975. However, the notification states that duty
calculated on the said basis would only be payable to           F
the extent of like goods manufactured in India by persons
other than 100% EOUs. This being the case, it is clear
that in the absence of actual sales in the wholesale
market, when goods are captively consu~ed and not
sold, Rule 8 of the Central Excise Rules would have to          G .
be followed to determine what would be the amount
equal to the duty of excise leviable on like goods. On
the facts of the present case, it is clear that the said duty
of excise arrived at based on Section 3(1) Proviso (ii) is
more than the duty determinable for like goods produced         H
224       SUPREME COURT REPORTS               [2015] 12 S.C.R.

A  or manufactured in India in other than 100% EOUs. Since
   the notification exempts anything that is in excess of what
   is determined as excise duty on such like goods, and
   considering that for the entire period under question the
   duty arrived at under Section 3(1) proviso (ii) is in excess
 B of the duty arrived at on like goods manufactured in India
   by non 100% EOUs, it is clear that the whole basis of the
   show cause notice is indeed flawed. Further, the show
   cause notice is based on one solitary circumstance -
   the fact that goods captively consumed by the two sister
 C units of the unit in question are not "sold". This
   approach flies in the face of the language of the
    notification dated 1.3.1997. The test to be applied under
   the said notification is whether the goods in question
   are "allowed to be sold" in India. The aforesaid
 0
    expression is obviously different from the expression
    "sold" and does not require any actual sale for the
    notification to be attracted. In fact revenue's case is also
    that even though the said notification is attracted, yet
 E because there is no sale somehow the FOB export price
    of like goods alone is to be looked at. If this were to be
    so, not only would the object of the notification not be
    sub-served but even its plain language would be
    violated. It is clear that the said notification has been
 F framed by the Central Government, in its wisdom, to levy
    only what is levied by way of excise duty on similar
    goods manufactured in India, on goods produced and
    sold by 100% EOUs in the domestic tariff area if they are
    produced from indigenous raw materials. lfthe revenue
 G were right, logically they ought to have contended that
    the notification does not apply, in which event the test
    laid down .under Section 3(1) proviso (ii) would then
    apply. This not being the case, the Tribunal's judgment
    is correct and requires no interference. [Para 16) [231-F-
 H H; 232-G-H; 233-A-G)
 COMMISSIONER OF CENTRAL EXCISE v. MIS NESTLE                   225
                INDIA LIMITED

    CIVILAPPELLATE JURISDICTION: Civil Appeal No. 951           A
of2008

     From the Judgment and Order No. 597 of 2007 dated
16.05.2007 of the Customs, Excise & Service Tax Appellate
Tribunal, Chennai in E Appeal No. 29 of 2007                    B

   A. K. Sanghi, Arijit Prasad, Kapil Rastogi, B. Raghu, M.
Rambabu, B. Krishna Prasad for the Appellant.

     V. Lakshmikumaran, M. P. Devanath, L. Charanaya,
Hemant Bajaj, Anandh K., Aditya Bhattacharya, T. D. Satish      C
for the Respondent.

     The Judgment of the Court was delivered by

      R. F. NARIMAN, J. 1. The respondent herein is a 100% D
EOU engaged in the manufacture of instant tea falling under
Chapter 2101.20 of schedule to the Central Excise Tariff Act,
 1985. The present appeal is concerned with clearances of
their product to two sister units on payment of duty in terms of
Notification No.8/97 - CE dated 1.3.1997 and Notification E
No.23/2003 CE dated 31.3.2003. The first notification would
cover the period 1.11.2000 te 30.3.2003 and the second
notification would cover the period 31.3.2003 to 31.5.2005.
Inasmuch as the instant tea was manufactured wholly out of
indigenous raw materials, the notifications aforesaid applied F
and whatever was in excess of what is chargeable by way of
excise duty on the said tea is exempted. It is not in dispute that
the said notifications applied in the facts of the instant case.

      2. A show cause notice dated 23.9.2005 was issued by      G
the Department stating that ordinarily Rule 8 of the Central
Excise Valuation (Determination of Price of Excisable Goods)
Rules, 2000 would apply and that the tea being captively
consumed and not sold should be valued at 115% of the cost
of production or manufacture of such goods. However, the        H
226         SUPREME COURT REPORTS                   [2015] 12 S.C.R.


A     show cause notice then goes on to say that as the said tea is
      transferred only to two sister concerns and no sale is involved,
      the assessable value of instant tea removed to the respondent's
      own units would be determined on the basis of the export price
      of similar goods and not 115% of the cost of production.
 B
            3. The order in original dated 31.5.2006 passed by the
      Additional Commissioner upheld the show cause notice and
      confirmed the duty amount, interest, and penalty as follows:-
                                    "ORDER
 c
            (1) I confirm the duty amount of Rs. 42,86,079/- (Rupees
            Forty two lakhs, eighty six thousand and seventy nine only)
            (Centvat: Rs.42,62,545/- and Education Cess Rs.23,534/
            -) under Section 11A(1) of the Central Excise Act, 1944.
 D
           (2) I demand appropriate interest on the above amount
           confirmed under Section 11AB(1) of the Central Excise
           Act, 1944.
            (3) I impose a penalty of Rs.42,86,079/- (Rupees Forty
 E          two lakhs, eighty six thousand and seventy nine only)
            under Section 11A (1) of the Central Excise Act, 1944.
            (4) As I have imposed penalty on them under Section
            11AC of Central Excise Act, 1944, I do not impose a
            separate penalty under Rule 1730 or 209 of erstwhile
 F
            Central Excise Rules 1944 and Rule 25 of erstwhile
            Central Excise (No2) Rules, 2001 read with Section 38A
            of Central Excise Act, 1944 and Rule 25 of Central
            Excise Rules, 2002."
 G       4. The appeal by the assessee was also dismissed by
   an order dated 26.9.2006 passed by the Commissioner
   (Appeals) upholding the show cause notice and stating that
   Section 3 (1) Proviso (ii) of the Central Excise Act would apply
   to the facts of the case and that being so, it is clear that the
 H basis for valuation had to be on the FOB value of export of
 COMMISSIONER OF CENTRAL EXCISE v. M/S NESTLE 227
         INDIALIMITED [R. F. NARIMAN, J.]

similar goods and not on the basis of cost of production under A
Rule 8 of the Central Excise Rules.

      5. By the impugned judgment dated 16.5.2007, CESTAT
set aside the judgment of the Commissioner (Appeals) by
 reasoning that since the exemption notifications would apply B
and since what has to be determined under the said
notifications is excise duty payable in India, such duty could
only be arrived at by applying Rule 8 in cases of captive
consumption and that therefore the basis of the show cause
notice and the decisions by the original and appellate C
authorities was incorrect. It accordingly set aside the order of
the Commissioner (Appeals).

      6. Shri A. K. Sang hi, argued before us that since the case
was covered by Section 3 (1) Proviso (ii) of the Central Excise o
Act, the Customs Act alone was to be looked at and if the
Customs Act was so looked at, the test as to value of goods
would be the test of similar goods of a like value that are
exported. Hence, according to him, the original authority and
the appellate authority were correct in applying the said Section E
and the Tribunal was wrong in ignoring the said Section and
applying exemption notifications to the facts of the case
instead.

       7. Ms. L. Charnaya, learned counsel appearing on behalf F
of the assessee on the other hand, supported the decision of
the tribunal and read to us in some detail not only the Central
Excis~ Valuation· Rules but also the notifications
aforementioned. It is her case that the show cause notice itself
was flawed in that the basis of the said notice is that since no G
sale had taken place on the facts of the present case, the FOB
value of export of similar goods has to be taken into account.
She laid great stress on the fact that in the notification dated
1.3.1997 the language used is not "sold" but "allowed to be
sold" and that if this were kept in mind it is clear that the very H
228         SUPREME COURT REPORTS                  [2015] 12 S.C.R.

A basis of the show cause notice being incorrect would lead to
  incorrect orders that were passed by the original and first
  appellate authority.

          8. Having heard learned counsel for the parties we think
 B it is necessary to first extract the relevant statutory provisions
   and the notifications insofar as they have a bearing on the facts
   of the present case.

           9. Section 3(1) proviso as it stood at the relevant time is
 c    extracted hereinbelow:-

           "SECTION 3. Duties specified in First Schedule and
           the Second Schedule to the Central Excise Tariff
           Act, 1985 to be levied.

 D          Provided that the duties of excise which shall be levied
            and collected on any excisable goods which are
            produced or manufactured, -

            (i} In a free trade zone or a special economic zone and
 E          brought to any other place in India; or

            (ii) By a hundred per cent export-oriented undertaking
            and brought to any other place in India,

            shall be an amount equal to the aggregate of the duties
 F
            of customs which would be leviable under the Customs
            Act, 1962 (52of1962) or anyotherlawforthe time being
            in force, on like goods produced or manufactured outside
            India if imported into India, and where the said duties of
            customs are chargeable by reference to their value; the
 G
            value of such excisable goods shall, notwithstanding
            anything contained in any other provision of this Act, be
            determined in accordance with the provisions of the
            CustomsAct, 1963 (52of1962) and the Customs Tariff
 H          Act, 1975(51 of1975)."
 COMMISSIONER OF CENTRAL EXCISE v. M/S NESTLE                       229
         INDIALIMITED [R. F. NARIMAN, J.]

      10. Section 5A being the Section under which the two A
notifications in the present case were issued is also of some
relevance and reads as follows:-

      "SECTION SA. Power to grant exemption from duty
      of excise. -                                    B
      ( 1) If the Central Government is satisfied that it is
      necessary in the public interest so to do, it may, by
      notification in the Official Gazette exempt generally either
      absolutely or subject to such conditions (to be fulfilled
      before or after removal) as may be specified in the C
      notification, excisable goods of any specified description
      from the whole or any part of the duty of excise leviable
      thereon:
        Provided that, unless specifically provided in such         o
      notification, no exemption therein shall apply to excisable
      goods which are produced or manufactured-
      (i) In a free trade zone or a special economic zone and
      brought to any other place in India; or
                                                                    E
      (ii) By a hundred per cent export-oriented undertakings
      and brought to any place in India."

      11. Rule 8 of the Central Excise Rules, 2000 as it stood
at the relevant time reads as follows:-
                                                                    F
      "RU LE 8. Where the excisable goods are not sold by
     the assessee but are used for consumption by him or on
     his behalf in the production or manufacture of other
     articles, the value shall be one hundred and fifteen per
     cent of the cost of production or manufacture of such G
     goods."

      12. Inasmuch as a great deal turns on the two notifications
that we are concerned with on the facts of the present case, it
is necessary to quote in full the first of the two notifications. H
230        SUPREME COURT REPORTS                 [2015] 12 S.C.R.


A          "Notification: 8/97-CE dated 01-Mar-1997
            Exemption to finished products, rejects and waste or
            scrap produced in a 100% EOU or FTZ In exercise of
           the powers conferred by sub-section ( 1) of section 5A of
           the Central Excise Act, 1944 ( 1 of 1944), the Central
 B
            Government, being satisfied that it is necessary in the
          . public interest so to do, hereby exempts the finished
            products, rejects and waste or scrap specified in the
            Schedule to the Central Excise Tariff Act, 1985 (5of1986)
 c          and produced or manufactured, in a hundred per cent
            export-oriented undertaking or a free trade zone wholly
            from the raw materials produced or manufactured in
            India, and allowed to be sold in India under and in
            accordance with the provisions of paragraphs 102 and
 D          114 of the Export and Import Policy 1 April 1992 - 31
            March 1997, from so much of the duty of excise leviable
            thereon under section 3 of the Central Excise Act, 1944
            (1 of 1944), as is in excess of an amount equal to the
            duty of excise leviable under the said section 3 of the
 E          Central Excise Act, on like goods, produced or
            manufactured in India other than in a hundred per cent .
            export-oriented undertaking or a free trade zone, if sold
            in India."

 F           13. To similar, effect for the subsequent period is the
      notification No.23 of 2003 dated 31.3.2003.

         14. The first thing to be noticed is that Section 5A under
   which the exemption notifications are issued states in the
 G proviso that no exemption shall apply to excisable goods which
   are produced or manufactured by a 100% Export Oriented
   Undertaking and brought to any place in India unless
   specifically provided in such ·exemption notification. When we
   turn to the notification dated 1.3.1997, we find that there is
 H specific provision for exemption of certain goods produced in
  COMMISSIONER OF CENTRAL EXCISE v. M/S NESTLE 231
          INDIALIMITED [R. F. NARIMAN, J.]

 a 100% EOU wholly from raw materials produced or A
 manufactured in India. It is not disputed by the revenue that
 the instant tea manufactured by the respondent would be
 covered being a finished product specified in the schedule to
 the Central Excise Ta riff Act. Further, the notification goes on
 to state that the said tea should be "allowed to be sold" in India B
 in accordance with the relevant EXIM policy. It further goes on
 to state that the exemption from payment of the duty of excise
 that is leviable thereunder under Section 3 is what is payable
 in excess of an amount equal to the duty of excise leviable on
 like goods produced or manufactured in India produced in an C
 undertaking other than in a 100% Export Oriented Undertaking,
 if sold in India.

        15. It is clear that the object of the notification is that so
  far as the product in question is concerned, so long as it is          D
  manufactured by a 100% EOU out of wholly indigenous raw
  materials and so long as it is allowed to be sold in India, the
· duty payable should only be the duty of excise that is payable
  on like goods manufactured or produced and0sold in India by
  undertakings which are not 100% EOUs.                                  E

         16. There is no doubt whatsoever that the duty of excise
 leviable under Section 3 would be on the basis of the value of
 like goods produced or manufactured outside India as
 determinable in accordance with the provisions of the Customs F
 Act, 1962 and the Customs Tariff act, 1975. However, the
 notification states that duty calculated on the said basis would
 only be payable to the extent of like goods manufactured in
 India by persons other than 100% EOUs. This being the case,
 it is clear that in the absence of actual sales in the wholesale G
 market, when goods are captively consumed and not sold,
 Rule 8 of the Central Excise Rules would have to be followed
 to determine what would be the amount equal to the duty of
 excise leviable on like goods. This being so, it is clear that H
232         SUPREME COURT REPORTS                    [2015] 12 S.C.R.


A learned counsel for the assessee is right in her contention that
  the basis of the show cause notice is itself flawed. The show
  cause notice in the present case, as has been noticed above,
  refers to Rule 8 of the Central Excise Valuation (Determination
  of Price of Excisable Goods) Rules, 2000, but then goes on to
B state that:
            "It is settled law that the value shall be determined
            keeping in view the following factors:
            a. sale price of goods under assessment
 C          b. sale price of other consignments of identical/
                 similar goods
            c. export price of identical/similar goods
            d. nature of sale transactions etc."
      The "settled law" spoken of would refer to a CBEC circular
 D    No.268/85-CX.8 dated 29.9.1994 which deals with valuation
      of goods manufactured by units working under the 100% EOU
      scheme. The said circular refers to Rule 8 of the Customs
      Valuation Rules and not the Central Excise Valuation Rules.
      The four factors laid down in the said circular have relevance
 E    only qua goods that are cleared in the DTA and how their
      valuation is to be arrived at. We have already seen that the
      manner of valuation of such goods would not be relevant for
      the simple reason that what has to be determined in the facts
 F    of the present case is the valuation of the duty of excise leviable
      under Section 3 of the Central Excise Act on like goods
      produced or manufactured in India by undertakings other than
      100% EOUs. The application of this circular and consequently
      any FOB export price would be wholly irrelevant for the purpose
 G    of this case and as has been held above, is only for arriving at
      the duty of excise leviable under Section 3(1) Proviso (ii) of
      the Central Excise Act. On the facts of the present case, it is
      clear that the said duty of excise arrived at based on Section
      3(1) Proviso (ii) is more than the duty determinable for like
 H    goods produced or manufactured in India in other than 100%
  COMMISSIONER OF CENTRAL EXCISE v. MIS NESTLE 233
          INDIALIMITED [R. F. NARIMAN, J.]

   EOUs. Since the notification exempts anything that is in A
   excess of what is ~etermined as excise duty on such like goods,
· and considering that for the entire period under question the
   duty arrived at under Section 3(1) proviso (ii) is in excess of
   the duty arrived at on like goods manufactured in India by non
   100% EOUs, it is clear that the whole basis of the show cause B
   notice is indeed flawed. Further, the show cause notice is
   based on one solitary circumstance - the fact that goods
  captively consumed by the two sister units of the unit in question
  are not "sold". We are afraid this approach flie$ in the face of
  the language of the notification dated 1.3.1997. The test to be C
  applied under the said notification is whether the goods in
  question are "allowed to be· sold" in India. The aforesaid
  expression is obviously different from the expression "sold"
  and does not require any actual sale for the notification to be
                                                                     0
  attracted. In fact revenue's case is also that even though the
  said notification is attracted,. yet because there is no sale
  somehow the FOB export price of like goods alone is to be
  looked at. If this were to be so, not only would the object of the
  notification not be sub-served but even its plain language would E
 be violated. It is clear that the said notification has been framed
 by the Central Government, in its wisdom, to levy only what is
 levied by way of excise duty on similar goods manufactured in
 India, on goods produced and sold by 100% EOUs in the
 domestic tariff area if they are produced from indigenous raw F
 materials. If the revenue were right, logically they ought to have
 contended that the notification does not apply, in which event
 the test laid down under Section 3(1) proviso (ii) would then
 apply. This not being the case, we are of the view that the
 Tribunal's judgment is correct and requires no interference. G
 The appeal is, accordingly, dismissed.

Devika. Gujral                                   Appeal dismissed.