Holding

DTA sales against foreign exchange are "allowed to be sold in India" and are fully entitled to the exemption under Notification No. 2/95‑CE; the Tribunal’s restriction to 50% of such sales is incorrect.

Summary

Mis. Virlon Textile Mills Ltd., a 100% export‑oriented unit manufacturing polyester yarn, sold its products against foreign exchange in the Domestic Tariff Area (DTA) under permission granted by para 9.10(b) of the Export‑Import Policy (1997‑2002). The Revenue issued a show‑cause notice demanding differential duty, arguing that the firm had not paid the full customs duty applicable under the proviso to Section 3(1) of the Central Excise Act, 1944. The Customs, Excise and Gold (Control) Appellate Tribunal held that the exemption under Notification No. 2/95‑CE applied only to 50% of such DTA sales, directing the firm to pay the balance duty. The Supreme Court held that DTA sales against foreign exchange are "allowed to be sold in India" and therefore fall within the proviso to Section 3(1) and are fully covered by Notification No. 2/95‑CE; the Tribunal’s 50% limitation was erroneous. Consequently, the duty liability must be recalculated under the exemption, the appellant’s appeal was allowed, the cross‑appeal dismissed, and the matter remitted to the Commissioner for fresh calculation.

Issues considered

Whether DTA sales against foreign exchange under para 9.10(b) of the Export‑Import Policy are covered by the proviso to Section 3(1) of the Central Excise Act, 1944.
Whether the exemption under Notification No. 2/95‑CE applies to the entire DTA sale against foreign exchange or is limited to 50% as interpreted by the Tribunal.
What duty rate is applicable to such sales – full customs duty under Section 12 of the Customs Act or the reduced rate under Notification No. 2/95‑CE.

Legislation cited

Subjects

Export Oriented UnitDomestic Tariff AreaExport‑Import PolicyCentral ExciseCustoms DutyExemption NotificationDuty CalculationTribunal Error

Judgment

A MIS. VIRLON TEXTILE MILLS LTD.
f .._
v.
COMMISSIONER OF CENTRAL EXCISE, MUMBAI

APRIL 17, 2007

B [S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.]

Customs Tariff Act, 1975; CSH 5402.33/Customs Act, 1962; S.12/Central
}.-
•'
Excise Act, 1944; S. 3(1); Notification No.2195-CE!Export and Import Policy
1997-2002; Paras 9.9 and 9.JO(b):
c
Levy of customs duty, excise duty and special additional duty-Texturised
Polyester Yarn and Dyed Polyester Yarn-Assessee selling against foreign
exchange in Domestic Tariff Area (DTA) in terms of para 9.IO(b) of Exim
Policy-Applicability of exemption Notification No.2195-CE-Held: Jn terms
D Exim Policy/rules every 100% Export Oriented Unit manufacturing capital
of
goods/finished products from duty free imported raw materials obliged to
export its entire production and earn foreign exchange-However, DTA sales
is exempted under the rules-Since in the present appeal, law as stood prior '-
to I 1.5.2001 is concerned, DTA sales against foreign exchange was also
covered by the proviso to s.3(1) of the 1944 Act-Hence the assessee is
E entitled to benefit of Notification No.2195-CE-Tribunal erred in relying on
para 9.9(b) of Exim Policy for limiting the benefits of exemption under the
Notification by imposing a new condition to the effect that the benefit woula
be admissible only in respect of 50% of such DTA sales-Since the benefit
of the Notification allowed to DTA sales against rupees, DTA sales against
F foreign exchange which are at par with physical exports cannot be denied '> '
the same benefit and cannot be subjected to a higher duty-Under the
circumstances, the matter is remanded to the Commissioner, Revenue for
calculation of the duty afresh accordingly.

Assessee is a 100% Export Oriented Unit (EOU) engaged in the
G manufacture ofTexturised Polyester Yarn and Dyed Polyester Yarn. The said
yarn is solid against foreign exchange by the assessee in Domestic Tariff
Area (OTA) subject tc permission given by the competent authority under para
9.lO(b) of Export and Import Policy (Exim Policy) 1997-2002. A show cause
' - '

notice was issued by the Revenue to the assessee demanding differential

H 266
VIRLONTEXTJLE MILLS LID.'" COMMNR. OF CENTRAL EXCISE, MUMBAI 267

... ~
I
amount of duty as it was not paying appropriate duties on the goods cleared
as per the permission granted by the authorities; that the assessee had paid
A

Countervailing duty (CVD) @30% on Texturised Polyester Yarn plus Rs. 9
per kg. on Dyed Polyester Yarn cleared under para 9.lO(b) of Exim Policy
against foreign excbange. In terms of the show cause notice, on clearance of
the said yarns into DTA under para 9.lO(b), assessee, being a 100% EOU,
was required to pay duty of excise equal to the aggregate of duties of customs B
leviable on such yarns falling under Chapter Sub-Heading (CSH) 5402.33 of
_... the Customs Tarriff Act 1975. Since the assessee had failed to pay the duty
~
in respect of clearances of the yarns under para 9.10 (b), it was asked to pay
Rs. 33.38 lacs additional amount of duty for certain period falling during
1997-2002. The demand of differential amount of duty had been confirmed by c
the Revenue authorities and on appeal by the Tribunal (CECAT) rejecting the
contention of the assessee that they were entitled to the benefit of exemption
Notification No.2/95-CE dated 4.1.1995. Hence the present appeal filed by the
assessee and cross appeal filed by the Revenue.

Allowing the appeal filed by the assessee and dismissing the appeal of D
the Revenue, the Court

'.J HELD: 1.1. The Exim Policy as a rule stated that every 100% EOU was
obliged to manufacture or produce from duty free imported raw materials
capital goods etc., finished products/articles and as a rule every 100% EOU
was obliged to export its entire production and earn foreign exchange. This E
was what was called as Physical Exports. However, this rule had certain
exceptions. The appeal in question is concerned with DT A sales. As an

.
exception, there existed two types of DT A sales under the Policy, namely, DTA
sales against rupee and DT A sales against foreign exchange which was
similar to physical exports. [Para 7) [276-E-F] F
,
1.2. The general rule was physical exports and other supplies in DTA
was equated to physical exports. This equation was necessary because other
supplies in DTA gave certain benefits to the economy like preservation of
foreign exchange, import substitution, savings of transportation costs and to
provide competitiveness and level-playing field for Indian exporters. G
[Para 7] [276-G-H]
- ).
1.3. In this civil appeal, the law as it stood prior to 11.5.2001 is being
considered. DT A sale against foreign exchange was ::overed by the expression
"allowed to be sold in India" and, therefore, such sale fell under the proviso
to Section 3(1) of the Central Excise Act, 1944. In the circumstances, the H
268 SUPREME COURT REPORTS [2007] 5 S.C.R.

A duty liability of the assessee was required to be determined after allowing to
it the benefit of notification No. 2/95-CE. That notification granted partial
t:

"
...
exemption to the assessee from duties in respect of goods manufactured in
100% EOU and allowed to be sold in India Under para 9.9(a), (b), (c) and (d)
of the Exim Policy. !Para 71 [277-A-CI

B 1.4. Once DTA sales against foreign exchange are held to be covered
by the proviso to Section 3(1) of the 1944 Act then the whole difference between
OTA sales against rupee and OTA sales against foreign exchange, for the
.._
purpose of notification No.2/95-CE would stand eliminated. This would be, •
however, subject to the compliance of other conditions of notification No. 2/

c 95-CE. Therefore, the Tribunal had erred in relying on para 9.9(b) of the Policy
for limiting the benefits of exemption under notification No.2/95-CE by
imposing a new condition to the effect that the benefits would be admissible
only in respect of 50% of such DT A sales against foceign exchange.
(Para 71 (277-C-D)
1.5. Once the permission was granted by the competent authority under
D the Exim Policy to make OTA sales against foreign exchange, the assessee
was entitled to the benefit of concessional rate of duty under notification no.
2/95-CE. If OTA sales against rupee were allowed the benefit of notification ...
No. 2/95-CE, then OTA supplies against foreign exchange, which were at par
with physical exports, cannot be denied the same benefits and they cannot be
E subjected to a higher duty. [Para 7; 277-D-E)
1.6. There is no fundamental difference, as far as the exemption
notification No. 2/95-CE is concerned, between OTA sales against foreign
exchange and DTA sales against rupee. Once OTA sales against foreign
exchange fall within the expression "allowed to be sold in India", the
F Department cannot deny to such sales the exemption under notification
.,. <
no. 2/95-CE, since OT A sales against foreign exchange will come under para
9.9. According to the Tribunal, the entire supply to DTA against foreign
exchange was not entitled to the benefit of notification No. 2/95-CE but only
50% of the supp!y was eligible for the said relief. There is no basis for
introduction of this condition in notification No. 2/95-CE. It appears that this
G condition is brought in on the ground that para 9.9(b) refers to OTA sales up
to 50% of the FOB value of exports. Thus, the Tribunal had erred in relying
on para 9.9 (b) for limiting the benefits of exemption under notification -1. -
No. 2/95-CE in respect of 50% of DTA sales (supplies) against foreign
exchange. One cannot ignore the fact that DTA sales in foreign exchange
H provides for better money value as compared to DTA sales in rupee. Therefore,
VIRLONTEXTILEMILLSLTD.1·. COMMNR.OFCENTRALEXCISE,MUMBAI[KAPADIA,J.] 269

r if DTA sales against rupee are allowed the benefits of notification No. 2/95- A
CE, DTA supplies, which are at par with physical exports, cannot be denied
the same benefits. (Para 71 (277-G-H; 278-A-BI

1. 7. Once DTA sales against foreign exchange are covered by the above
expression "allowed to be sold in India", all issues relating to calculation of
the duty payable in terms of notification No. 2/95-CE will have to be decided B
afresh by the adjudicating authority and hence, the matter is remanded back
to the Commissioner for calculating the duties payable by the assessee in
• ~

terms of notification No. 2195. [Para 71 (277-F)

CIVIL APPELLATE JURISDICTION: Civil Appeal No, 570 of2002,
c
From the Final Order No. C-1/3258/01-WZB dated 19.10.2001 in Appeal
No. E/3528/2000-Mum passed by the Customs, Excise and Gold (Control)
Appellate Tribunal, Mumbai.
WITH
C.A. No. 3237 of2002. D
l S.K. Bagaria, Tarun Gulati, Jaiveer Shergill, Bina Gupta, Shweta Verma
,t
and Amrita Swarup for the Appellant.

R. Venkataramani, G. Prakash and B. Krishna Prasad for the Respondent.
E
The Judgment of the Court was delivered by

KAPADIA, J. Civil Appeal No.570 of 2002:

I. Appellant-Mis. Virlon Textile Mills Ltd. is a I 00% Export Oriented
,J ., Unit (EOU) engaged in the manufacture of Texturised Polyester Yarn and F
Dyed Polyester Yarn. The said yarn is sold against foreign exchange by the
appellant in Domestic Tariff Area (DTA) subject to permission given by the
competent authority under para 9.IO(b) of Export and Import Policy (Exim
Policy) 1997-2002. In this civil appeal, the question for consideration is the
rate of duty applicable to sales falling under para 9.10 (b ).
G
-) 2. On 4.11.1999 a show cause notice was issued by the Joint
Commissioner of Central Excise, Mumbai to the appellant stating thai the
appellant was not paying appropriate duties on the goods cleared as per the
permission granted by the Development Commissioner. According to the
show cause notice, the appellant had paid Countervailing duty (CVD)@ 30% H
270 SUPREME COURT REPORTS [2007] 5 S.C.R.

A on Texturised Polyester Yam plus Rs. 9 per kg. on Dyed Polyester Yam i
cleared under para 9.10 (b) ofExim Policy against foreign exchange. According
to the show cause notice, under the proviso to sub-section (I) of Section 3
of the Central Excise Act, 1944, (the "1944 Act") duty of excise was leviable
on excisable goods produced by 100% EOU and allowed to be sold in India,
equal to the aggregate of the duties of customs leviable under Section 12 of
B the Customs Act, 1962, on like goods produced or manufactured outside india

-.
if imported into India, and where the said duty of customs is chargeable by
reference to value; the value of such goods shall be detennined in accordance
with the provisions of the Customs Act, 1962 and the Customs Tariff Act,
1975. According to the said show cause notice, in the present matter, on
C clearance of the said yams into DTA under para 9.lO(b), appellant, being a
100% EOU, was required to pay duty of excise equal to the aggregate of
duties of customs leviable on such yams falling under Chapter Sub-Heading
(CSH) 5402.33 of the Customs Tariff Act 1975 as follows:

"A. Basic Customs duty - @ 35% ad valorem.
D B. Additional Duty equal to excise duty under Section 3 of the
Customs Tariff (also known as Countervailing Duty or CVD)
j
minus 24% + 6%. k

c. Special Additional Duty of Customs under Sec. 3A of Customs
Tariff Act, 1975 - @4%.
E
D. Cess@ 0.05% under Textile Committee Act, 1963."

According to the show cause notice, the appellant had failed to pay the duty
•
in respect of clearances of the above yams under para 9.10 (b), as indicated
hereinabove, and accordingly, it was asked to pay Rs. 33.58 lacs (rounded off
F figure) on their clearances during the period 8.4.1999 to 20.10.1999 falling
during the Exim Policy period 1997-2002.
r·

3. This demand had been confinned by all the authorities and the
Tribunal (CEGA T) vide impugned judgment dated 19.10.2001. In the impugned
judgment, the Tribunal took the view that the entire supplies of yams to DTA
G against foreign exchange earned by the appellant was liable to duty payment
on clearance in accordance with the proviso under sub-section (1) to Section
3 of the 1944 Act equal to the customs duty leviable under Section 12 of the .( -
Customs Act, 1962 on like goods produced by a manufacturer outside India.
In other words, the Tribunal has upheld the order of the Commissioner (A).
H The Tribunal has also rejected the contention raised on behalf of the appellant
VIRLONlEXTILEMILLSLTD. v. COMMNR. OF CENTRAL EXCISE, MUMBAI [KAPADIA,J.) 271

_.. -~ saying that even ifthe supplies of the yam under para 9.IO(b) was comparable A
to the DTA sales in para 9.9 of the said Exim Policy, still the appellant was
entitled to the benefit of exemption under notification No. 2/95-CE dated
4. LI 995. The Tribunal also rejected the contention of the appellant that, in
any event, it was entitled to exemption under notification No. 53/97-Cus.
Dated 3.6.1997. According to the Tribunal, the said notification No. 53/97 B
exempted specified goods from customs duty which were imported into India
for manufacture of articles for export out of India or for being used to produce
final products for export in cases where the final products/articles stood
produced or manufactured by 100% EOU approved by the Commissioner.
According to the Tribunal, para 7 of notification No. 53/97 was not applicable
to the present case since para 7 applied only to goods (raw materials) which C
were imported for the manufacture of articles allowed to be sold in India on
payment of duty under Section 3(1) of the said 1944 Act. According to the
Tribunal, para 7 applied only to DTA sales falling under para 9.9 and it did
not apply to DTA sales (supplies) falling under para 9.10 (b) and if they are
equated still the appellant was not entitled to the benefit, in full, of the
exemption notification no. 2/95-CE. According to the Tribunal, the appellant D
was also not entitled to the benefit of exemption under notification No. 2/95-
CE because that notification was applicable to goods allowed to be sold in
India in accordance with the provisions of para 9.9 ofExim Policy 1997-2002.
According to the Tribunal, notification bearing no. 2/95-CE had the effect of
fixing a value or the amount of which 50% of the duty leviable under Section E
12 of the Customs Act, 1962 stood payable. But Section 12 of the Customs
Act, 1962 only applied to goods sold to domestic tariff at the rate of duty
leviable on like goods when imported into India. According to the Tribunal,
in terms of notification No. 2/95-CE the rate of duty applicable was 50% of
the amount of duty. According to the Tribunal, the appellant herein was not
entitled to the benefit of exemption under notification No. 2/95-CE since the F
goods have not been sold in DTA in terms of para 9.9. The Tribunal came
to the conclusion that, there was no merit in the contention of the appellant
that even supplies made to DTA against payment in foreign exchange should
be counted towards fulfilment of export obligations and, therefore, all sales
made to DTA whether against payment in foreign exchange or payment in G
rupees should be treated as DTA sales and, in that event, the assessee-
appellant would also be entitled to the benefit of exemption notification No.
2195-CE.

4. In this matter, appellant seeks equation of para 9.10 (b) sales with para
9.9 sales for the purposes of claiming benefit of exemption under notification H
272 SUPREME COURT REPORTS [2007] 5 S.C.R.

A No. 2/95-CE which has been denied by the Tribunal. Hence this civil appeal.
1 ..
5. We quote hereinbelow Section 3(1) of the Central Excise Act, 1944:

"SECTION 3. Duties specified in the Schedule to the Central Excise
Tariff Act, 1985 to be levied (1) There shall be levied and collected
B in such manner as may be prescribed duties of excise on all excisable
goods which are produced or manufactured in India as, and at the
rates, set forth in the Schedule to the Central Excise Tariff Act, 1985:
>-- ~
Provided that the duties of excise which shall be levied and collected '
on any excisable goods which are produced or manufactured,-
c (i) in a free trade zone and brought to any other place in India; or
(ii) by a hundred per cent export-oriented undertaking and allowed
to be sold in India.
shall be an amount equal to the aggregate of the duties of customs
D which would be leviable under section 12 of the Customs Act, 1962
(52 of 1962), 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 value of such excisable k
goods shall, notwithstanding anything contained in any other
provisions of this Act, be detennined in accordance with the provisions
E of the Customs Act, 1962 (52 of 1962) and the Customs Tariff Act,
1975 (51 of 1975).

Explanation 1. Where in respect of any such like goods, any duty of
customs leviable under the said section 12 is leviable at different
rates, then, such duty shall, for the purposes of this proviso, be
F deemed to be leviable under the said section 12 at the highest of r-· •
those rates.

Explanation 2. In this proviso, -
(i) "free trade zone" means the Kandla Free Trade Zone and the
G Santa Cruz Electronics Export Processing Zone and includes any
other free trade zone which the Central Government may, by
notification in the Official Gazette, specify in this behalf; ( -
(ii) "hundred per cent export-oriented undertaking" means an
undertaking which has been approved as a hundred per cent
H export-oriented undertaking by the Board appointed in this behalf
VIRWl<TEXTILEMILLS LID. 1·. COMMNR. OF CENTRAL EXCISE, MUMBAI [KAPADIA,J.] 273

""."' .. by the Central Government in exercise of the powers conferred
by section 14 of the Industries (Development and Regulation)
A

Act, 1951 (65 of 1951 ), and the rules made under that Act.

6. We also quote hereinbelow the exemption notification No. 2/95-CE:

"GENERAL EXEMPTION NO. 55 B
Exemption to all excisable goods produced in IOO% EOU, FTZ,
EHTP or STP units when sold in India- In exercise of the powers
t' ....... conferred by sub-section (I) of section 5A of the Central Excise and
Salt Act, 1944 (I of 1944), the Central Government, being satisfied that
it is necessary in the public interest so to do, hereby exempts all c
excisable goods (hereinafter referred to as the said goods) specified
in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and
produced or manufactured in a hundred percent export oriented
undertaking or a free trade zone or an Electronic Hardware Technology
Park (EHTP) unit or a Software Technology Parks (STP) unit and
D
allowed to be sold in India under and in accordance with the
provisions of sub-paragraphs (a), (b), (c) and (d) of paragraph 9.9
or of paragraph 9.20 of the Export and Import Policy, I April 1997 -
')
31 March 2002, from so much of the duty of excise leviable thereon
under section 3 of the said Central Excise Act as is in excess of the
amount calculated at the rate of fifty per cent of each of the duties E
ofcustoms, which would be leviable under section 12 of the Customs
Act, 1962 (52 of 1962) read with any other notification for the time
being in force issued under sub-section (I) of section 25 of the said
Customs Act on the like goods produced or manufactured outside
India if imported into India: F
~
"f Provided that the amount of duty payable in accordance with this
notification in respect of the said goods shall not be less than the
duty of excise leviable on the like goods produced or manufactured
outside the hundred per cent export-oriented undertaking or free
trade zone or Electronic Hardware Technology Park (EHTP) unit or G
Software Technology Parks (STP) unit which is specified in the said
Schedule read with any other relevant notification issued under sub-
~ '\ rule(I) of rule 8 of the Central Excise Rules, 1944 or sub-section (I)
of section 5A of the said Central Excise Act, as the case may be:

Provided further that nothing contained in the above proviso shall H
274 SUPREME COURT REPORTS (2007] 5 S.C.R.

A apply to the goods which are chargeable to nil rate of duty leviable
under section 12 of the Customs Act read with any other notification
for the time being in force issued under sub-section (I) of section 25
of the said Customs Act.

Provided also that the exemption under this notification shall not be
B availed until the Assistant Commissioner is satisfied that,-

(i) in the case of the said goods other than software, rejects, scrap,
waste or remnants:- ..__ .,
(a) such goods being cleared for home consumption are similar to the
c goods which are exported or expected to be exported from the unit
during the specified period of such clearances in terms of the Export-
Import Policy, 1st April, 199731st March, 2002;

(b) the value of such goods being cleared for home consumption from
the unit specified in column (2) of the Table hereto annexed, does not
D exceed the percentage limit of the entitlement as specified in the
corresponding entry in column (3) of the said Table for such clearance,
calculated with reference to the total value of production of goods
which are identical in all respects to those under clearance; '-'

(c) The balance of the production of the goods which is identical to
E such goods under clearance of home consumption, is exported out of
India or disposed of in terms of paragraph 9. I0 of the said Export and
Import Policy,

(ii) In the case of the said goods being software cleared for home
consumption:-
F
(a) the value of such software cleared during the period specified ~ -
does not exceed twenty-five per cent of the total value of production
of the software in the unit;

(b) the balance of the production excluding the value cleared as
G referred to in sub-clause (a) is exported out of India or disposed of
in terms of para 9.10 of the said Export and Import Policy,

(iii) in the case of the said goods in the nature of rejects, scrap, waste
or remnant being cleared for home consumption, the value of such
'~
goods is within the percentage limits fixed for the unit in terms of the
H Export and Import Policy 1.4.1997 31.3.2002.
VIRLONTEXTILEMILLS LTD. 1·. COMMNR. OF CENTRAL EXCISE, MUMBAI IKAPAD!A,J.j 275

... Explanation. For the purpose of this notification, the expression, - A
( 1) "Export and import Policy, 1 April, 1997 31st March, 2002" means
the Export and Import Policy, 1 April, 1997 31 March, 2002 published
by the Government of India under the Ministry of Commerce notification
No. l/1997-2002,dated3lstMarch, 1997.
B
(2) "Electronic Hardware Technology Park (EHTP) unit" means a unit
established under and in accordance with Electronic Hardware
Technology Park (EHTP) Scheme notified by the notification of the
Government of India in the Ministry of Commerce No. 5 (RE-95) 92-
97, dated 30th April, 1995 and approved by an Inter-Ministerial
Standing Committee appointed by the notification of the Government c
of India in the Ministry of Industry (Department of Industrial
Development) No. S.O. 1l7(E), dated the 22nd February, 1993;

(3) "Software Technology Parks (STP) unit" means a unit established
under and in accordance with Software Technology Parks (STP) Scheme
notified by the notification of the Government of India in the Ministry D
of Commerce No. 4/(RE-95)/92-95, dated 30th April, 1995 and approved
') by an Inter-Ministerial Standing Committee appointed by the
notification of the Government of India in the Ministry of Industry
(Department of Industrial Development) No. S.O.l l 7(E), dated the
22nd February, 1993.
E
s. Unit Percentage limit of
No. entitlement for
clearances for home
consumption
(I) (2) (3) F
I. Units in the agriculture, 50 per cent
aquaculture, animal
husbandry, floriculture,
horticulture, pisciculture,
poultry and sericulture
sectors
G
-) 2. Units engaged in the
manufacture of electronic
hardware products
which achieves,-
(a) net foreign exchange NIL H
276 SUPREME COURT REPORTS (2007] 5 S.C.R. --:-

A earnings as a percentage >f
of exports less than ten
per cent
(b) net foreign exchange Upto thirty per cent of
earn in gs as a percentage the production in
of exports of ten per cent value terms of the
B or more but not exceeding electronic items,
twenty five per cent including components
manufactured in the .... ">
unit.
(c) net foreign exchange Upto forty per cent
C earnings as a percentage of the production
of exports exceeding in value terms of
twenty five per cent electronic items,
including components
manufactured in the
unit.
D 3. Other Units 25 per cent"
(emphasis supplied)
7. For the following reasons, we find merit in this civil appeal. Firstly,
on examination of the Exim Policy we find that the said Policy as a rule stated
E that every 100% EOU was obliged to manufacture or produce from duty free
imported raw materials capital goods etc., finished products/ articles and as
a rule every 100% EOU was obliged to export its entire production and earn
foreign exchange. This was what was called as Physical Exports. However,
this rule had certain exceptions. In this civil appeal, we are concerned with
DTA sales. As an exception, there existed two types of DTA sales under the
F said Policy, namely, DTA sales against rupee and DTA sales against foreign
exchange which was similar to physical exports. This latter category was
known as "Other Supplies in DTA". Therefore, to put it in brief, "Other
Supplies in DTA" was equated with physical exports which, as stated above,
was the general rule for 100% EOU. In other words, the general rule was
G physical exports and other supplies in DTA was equated to physical exports.
This equation was necessary because other supplies in OTA gave certain
benefits to the economy like preservation of foreign exchange, import
substitution, savings of transportation costs and to provide competitiveness l -
and level-playing field for Indian exporters. According to the Revenue, the
expression occurring in the second proviso to Section 3(1), namely, "allowed
H to be sold in India" was applicable only to DTA sales against rupee and not
VIRLONTEXTILEMILLSLTD. 1•. COMMNR. OF CENTRAL EXCISE, MillffiAl [KAPAD!A,J.) 277

DTA sale against foreign exchange. In this civil appeal, we are concerned with A
the law as it stood prior to 11.5.2001. In our view, DTA sale against foreign
exchange was covered by the expression "allowed to be sold in India" and,
therefore, such sale fell under the proviso to Section 3( I) of the 1944 Act. In
the circumstances, the duty liability of the assessee (appellant herein) was
required to be detennined after allowing to it the benefit of notification No. B
2/95-CE. That notification granted partial exemption to the assessee from
duties in respect of goods manufactured in 100% EOU and allowed to be sold

- -'
in India under para 9.9 (a), (b), (c) and (d). Once DTA sales against foreign
exchange are held to be covered by the proviso to Section 3(1) of the 1944
Act then the whole difference between DTA sales against rupee and OTA
sales against foreign exchange, for the purposes of notification No. 2/95-CE C
would stand eliminated. This would be, however, subject to the compliance
of other conditions of notifi~ation No. 2/95-CE. Therefore, in our view, the
Tribunal had erred in relying on para 9.9(b) for limiting the benefits of exemption
under notification No. 2/95-CE by imposing a new condition to the effect that
the benefits would be admissible only in respect of 50% of such DTA sales
against foreign exchange. Secondly, once the pennission was granted by the D
competent authority under the Exim Policy to make DTA sales against foreign
exchange, the assessee (appellant herein) was entitled to the benefit of
concessional rate of duty under notification no. 2/95-CE. If OTA sales against
rupee were allowed the benefit of notification No. 2/95-CE, then DTA supplies
against foreign exchange, which were at par with physical exports, cannot be E
denied the same benefits and they cannot be subjected to a higher duty.
Thirdly, once DTA sales against foreign exchange are covered by the above
expression "allowed to be sold in India'', all issues relating to calculation of
the duty payable in tenns of notification No. 2/95-CE will have to be decided
afresh by the adjudicating authority and accordingly, we hereby remand the
matter back to the Commissioner for calculating the duties payable by the F
assessee in tenns of notification No. 2/95. The Commissioner will calculate the
duties accordingly as hereinabove mentioned. Lastly, we are of the view that
there is no fundamental difference, as far as the exemption na~ification No.
2/95-CE is concerned, between DTA sales against foreign exchange and OTA
sales against rupee. Once DTA sales against foreign exchange fall within the G
expression "allowed to be sold in India", the Department cannot deny to such
sales the exemption under notification no. 2/95-CE, since OTA sales against
foreign exchange will come under para 9.9. According to the Tribunal, the
entire supply to DTA against foreign exchange wa~ not entitled to the benefit
· of notification No. 2/95-CE but only 50% of the supply was eligible for the
said relief. We do not see any basis for introduction of this condition in H
278 SUPREME COURT REPORTS (2007) 5 S.C.R.

A notification No. 2/95-CE. It appears that this condition is brought in on the
ground that para 9.9 (b) refers to OTA sales up to 50% of the FOB value of
exports. In our view, the Tribunal had erred in relying on the said para 9.9 (b)
for limiting the benefits of exemption under notification No. 2/95-CE in respect
of 50% of OTA sales (supplies) against foreign exchange. One cannot ignore
B the fact that OTA sales in foreign exchange provides for better money value
as compared to OTA sales in rupee. Therefore, if OTA sales against rupee are
allowed the benefits of notification No. 2/95-CE, OTA supplies, which are at
par with physical exports, cannot be denied the same benefits.
>- -
8. For the above reasons, we do not wish to examine the larger issue
C canvassed before us on behalf of the assessee (appellant herein). We are
confining this judgment to the arguments which were advanced by the
. appellant herein before the Tribunal.

9. Accordingly, the civil appeal filed by the appellant herein stands
allowed. The impugned judgment of the Tribunal is set aside and the matter
D is remitted to the Commissioner for calculation of duties payable in terms of
notification no. 2/95-CE, as interpreted hereinabove.

I0. The appeal stands allowed with no order as to costs.

Civil Appeal No. 3237 of 2002
E
[Commissioner of Central Excise v. Mis. Virlon Textile Mills.]

11. In view of our judgment in Civil Appeal No.570 of2002 (supra), this
civil appeal filed by the Department stands dismissed with no order as to
costs.
F
S.K.S. C.A. No. 570 of2002 allowed.
C.A. No. 3237 of2002 dismissed.