Holding

The Court held that when an EOU violates the conditions of the EXIM Policy, the exemption under the 1994 notification is lost and customs duty is chargeable on the inputs as if imported, and that the 2001 amendment notification is prospective in nature.

Summary

M/s L.R. Brothers Indo Flora Ltd., a 100% Export Oriented Unit (EOU) producing cut flowers, imported inputs duty‑free under Notification No. 126/94-Cus but sold a portion of its produce in the Domestic Tariff Area (DTA) without the required approval of the Development Commissioner and without meeting the net foreign‑exchange earning condition of the EXIM Policy. The Revenue issued a show‑cause notice demanding customs duty, interest and penalty on the DTA sales, invoking the Customs Act, 1962, and the matter was upheld by the Additional Commissioner, the Commissioner (Appeals) and CESTAT. The appellant contended that customs duty could not be levied on non‑excisable cut flowers and that the amendment notification of 18‑05‑2001 was retrospective. The Supreme Court held that contravention of the EXIM Policy extinguishes the exemption under the 1994 notification, making the inputs liable to customs duty as if the goods were imported, and that the 2001 amendment was prospective, not retrospective. Consequently, the demand for customs duty on the inputs was upheld. The appeal was dismissed.

Issues considered

Whether customs duty can be charged on non‑excisable goods produced in India and sold in the Domestic Tariff Area by a 100% Export Oriented Unit.
Whether the amendment notification dated 18.05.2001, which altered the duty‑charging clause for inputs, operates prospectively or retrospectively.

Legislation cited

Central Excise Act, 1944s. 3
Customs Act, 1962s. 12, s. 25, s. 28, s. 3
Customs Tariff Act, 1975

Subjects

Export Oriented UnitDomestic Tariff AreaCustoms dutyExcise dutyExemption notificationRetrospective legislationSection 28EXIM PolicyNon‑excisable goods

Judgment

[2020] 10 S.C.R. 1043 1043

M/S. L. R. BROTHERS INDO FLORA LTD. A
v.
COMMISSIONER OF CENTRAL EXCISE
(Civil Appeal No. 7157 of 2008)
SEPTEMBER 01, 2020 B
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Customs Act, 1962 – Central Excise Act, 1944 – s.3 –
Appellant, a 100% Export Oriented Unit (EOU) was engaged in
production of cut flowers and flower buds – The 100% EOU is
C
required to export all articles produced by it and was exempted
from payment of customs duty on the imported inputs used during
production of the exported articles vide exemption notification dated
03.06.1994 – Under the said notification, exemption on levy of
customs duty was extended even to the inputs used in production of
articles sold in domestic market – Thereafter, came amended D
notification dated 18.05.2001, by which the customs duty in case
of non-excisable goods became leviable on inputs used for
production, manufacturing or packaging, as if there was no
exemption notification in place – The EXIM Policy 1997-2002
provided that a 100% EOU in floriculture sector was permitted to
E
sell 50% of its produce in Domestic Tariff Area (DTA), subject to
achieving positive net foreign exchange earning of 20% and upon
the approval of the Development Commissioner – The appellant
without obtaining the approval of the Development Commissioner
and without maintaining the requisite net foreign exchange earning
made DTA sales during 1998-99 to 2000-01 in contravention of the F
EXIM Policy – However, the appellant subsequently sought ex-post
facto approval from Development Commissioner – The Additional
Commissioner, Central Excise issued a show cause notice as to why
customs duty, interest and penalty should not be imposed for the
DTA sales made by the appellant in contravention of the EXIM Policy,
G
that too after having availed exemptions under the exemption
notification – The Additional Commissioner adjudged the show
cause notice and held that the DTA sales were made without
permission and in contravention of the EXIM Policy and therefore,
customs duty is leviable upon the appellant for the said sales – The
Appeal before the Commissioner was unsuccessful – In a further H
1043
1044 SUPREME COURT REPORTS [2020] 10 S.C.R.

A appeal before CESTAT, the order of the authorities below were
confirmed – The Supreme Court framed two questions: (i) Whether
customs duty can be charged on the non-excisable goods produced
in India and sold in DTA by an EOU ?; and (ii) Whether the
amendment notification dated 18.05.2001, purporting to amend the
criteria for determination of duty on inputs, is prospective or
B
retrospective in its application ? – Held: The DTA sales pertaining
to excisable goods made in conformity with the conditions of the
EXIM policy are exigible to excise duty, but once there is
contravention of the condition(s) of the EXIM policy, irrespective
of the goods produced being excisable or non-excisable, the benefit
C under the exemption notification is unavailable – In such a situation,
the very goods would become liable to imposition of customs duty
as if being imported goods – So, the demand in the present case,
pertaining to the non-excisable goods (cut flowers) has rightly been
made under the 1962 Act upon the imported inputs used in the
production of goods sold in DTA in violation of condition(s) in the
D
EXIM Policy – So far as the amendment notification is concerned,
it is a settled proposition of law that all laws are deemed to apply
prospectively unless either expressly specified to apply
retrospectively or intended to have been done so by the legislature
– An essential requirement for application of a legislation
E retrospectively is to show that the previous legislation had any
omission or ambiguity or it was intended to explain an earlier act –
In absence of the above ingredients, a legislation cannot be regarded
as having retrospective effect – In the instant case, the amendment
notification was not in clarificatory nature – Further, any ambiguity
in regard to the date of application of the amendment thereto would
F
necessarily have to be construed in favour of the State, unless shown
otherwise by judicially acceptable parameters – Therefore, CESTAT
has rightly upheld the levy of customs duty.
Dismissing the appeal, the Court
G HELD: Whether customs duty can be charged on the non-
excisable goods produced in India and sold in DTA by an EOU?
1. The DTA sales pertaining to excisable goods made in
conformity with the conditions of the EXIM policy are exigible to
excise duty, but once there is contravention of the condition(s)
H of the EXIM policy, irrespective of the goods produced being
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1045
OF CENTRAL EXCISE

excisable or non-excisable, the benefit under the exemption A
notification is unavailable. In such a situation, the very goods
would become liable to imposition of customs duty as if being
imported goods. [Para 15][1062-D]
2. In the present case, the notification provides for
exemption on import of inputs and at the same time prescribes B
for adherence of certain conditions for availing the exemption.
The notification further prescribes the rate at which the customs
duty on the inputs used in the production of non-excisable goods
sold in DTA is to be charged. Thus, the notification, having been
issued in exercise of delegated legislation under Section 25 of
the 1962 Act, has to be understood as “any other law”. Resultantly, C
the appellant, having availed exemption under the notification,
cannot evade customs duty on the imported inputs at the rate
prescribed by the notification. [Para 17][1063-B-C]
3. The show cause notice points out that the appellant
imported raw materials like “Live Rose Plants” and consumables D
like fertilizers and planting materials, however, the appellant
advisedly chose to confine its argument to “cut flowers”, which,
as contended, were grown on Indian soil and thus not amenable
to customs duty. However, the demand made in the show cause
notice “treating” cut flowers as deemed to have been imported E
was only for the purpose of quantification of the customs duty on
the imported inputs and not imposition of the customs duty on
the domestically grown cut flowers as such. [Para 18][1063-D-E]
4. A priori, the demand in the present case, pertaining to
the non-excisable goods has rightly been made under the 1962 F
Act upon the imported inputs used in the production of goods
sold in DTA in violation of condition(s) in the EXIM Policy. [Para
20][1064-C]
5. In case of excisable goods, even the present notification
takes resort to Section 3 of the 1944 Act, as can be seen from the G
notification dated 03.06.1994. Whereas, the provisions of the 1962
Act are invoked only when the goods are non-excisable. In the
present case, since the cut flowers are non-excisable goods, the
demand for payment of customs duty had rightly been made vide

H
1046 SUPREME COURT REPORTS [2020] 10 S.C.R.

A show cause notice under the provisions of the 1962 Act.
[Para 22][1064-E-F]
Whether the amendment in terms of amended notification
dated 18.05.2001, purporting to amend the criteria for
determination of duty on inputs, is prospective or retrospective
B in its application?
6. The amended notification posits of carrying out
amendments and substituting the charging clause of the inputs
used in case of non-excisable goods. The language employed in
the notification does not offer any guidance on whether the
C amendments as made were to apply prospectively or
retrospectively. It is a settled proposition of law that all laws are
deemed to apply prospectively unless either expressly specified
to apply retrospectively or intended to have been done so by the
legislature. The latter would be a case of necessary implication
and it cannot be inferred lightly. [Para 24][1066-A-B]
D
7. The proviso to the charging section 3 of the 1944 Act
provides that an EOU making DTA sales shall be charged duty
as if the goods were imported into India and in value equal to the
customs duty chargeable thereto. No doubt, the said provision
applies only in cases of excisable goods, but the exemption
E notification providing for similar duty by terms thereunder for
non-excisable goods, can be understood to have been made to
equate the duty in case of excisable as well as non-excisable goods.
Therefore, it must follow that the said provision was not an error
that crept in but was intentionally introduced by the Government
F to determine the charging rate. That being the position prior to
amendment, the amendment brought in cannot be said to be
clarificatory in nature. [Para 28][1069-C-E]
8. In Vatika Township, Constitution Bench of this Court has
analysed the principle concerning retrospectivity. It was made
G clear that an essential requirement for application of a legislation
retrospectively is to show that the previous legislation had any
omission or ambiguity or it was intended to explain an earlier
act. In absence of the above ingredients, a legislation cannot be
regarded as having retrospective effect. [Para 30][1069-G; 1071-
D]
H
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1047
OF CENTRAL EXCISE

9. It is relevant here to advert to a decision of Constitution A
Bench of this Court in Commissioner of Central Excise, New Delhi
vs. Hari Chand Shri Gopal & Ors, wherein it has been held that
an exemption clause ought to be strictly construed according to
the language employed therein and in case of any ambiguity,
benefit must go to the State. Applying the aforequoted dictum to
B
the present case, the appellant was obliged to comply with the
conditions prescribed by the EXIM Policy, to avail the exemption
under the stated notification; and failure to do so, must denude
them of the exemption so granted. Further, since the charging
rate prescribed under the exemption notification is under
question, any ambiguity in regard to the date of application of the C
amendment thereto would necessarily have to be construed in
favour of the State, unless shown otherwise by judicially acceptable
parameters. [Para 32][1072-B-C; 1073-B-C]
10. The next contention of the appellant is that Section 28
of the 1962 Act cannot be invoked to extend the limitation as D
there was no wilful mis-statement or suppression of facts on behalf
of the appellant. In the fact situation of the present case, the
appellant was issued a show cause notice mentioning that it had
suppressed the DTA sales of cut flowers to evade payment of
duty. Had the appellant in good faith believed that no duty was
payable upon the DTA sales of cut flowers, it would have sought E
prior approval of the Development Commissioner, which it failed
to do. Even in the letter seeking ex-post facto approval, the
appellant claimed that they had not used any imported input such
as fertilizer, plant growth regulations, etc. in growing flowers sold
in DTA, despite having imported green house equipment, raw F
materials like Live Rose Plants and consumables like planting
materials and fertilizers. Therefore, it prima facie appeared that
suppression by the appellant was “wilful”. The burden of proving
to the contrary rested upon the appellant, which the appellant
failed to discharge by failing to establish that the imported inputs
were not used in the production of the cut flowers sold in DTA. G
In view thereof, the authorities below have rightly invoked
Section 28 of the 1962 Act and allied provisions. [Paras 33 and
34][1073-D, F-H; 1074-A]

H
1048 SUPREME COURT REPORTS [2020] 10 S.C.R.

A Commissioner of Income Tax (Central) – I, New Delhi
v. Vatika Township Private Limited (2015) 1 SCC 1 :
[2014] 12 SCR 1037; Commissioner of Central Excise,
New Delhi v. Hari Chand Shri Gopal & Ors. (2011) 1
SCC 236 : [2010] 13 SCR 820 – followed.
B Union of India & Anr. v. IndusInd Bank Limited & Anr.
(2016) 9 SCC 720 : [2016] 11 SCR 700 – relied on.
Zile Singh v. State of Haryana & Ors. (2004) 8 SCC 1
: [2004] 3 Suppl. SCR 400 – inapplicable.
Uniworth Textiles Limited v. Commissioner of Central
C Excise, Raipur (2013) 9 SCC 753 : [2013] 3 SCR 27 –
referred to.
Cosco Blossoms Pvt. Ltd v. Commissioner of Customs,
Delhi 2004 (164) ELT 423 (Tri.-Del.); Commissioner
of Central Excise and Customs v. Suresh Synthetics
D 2007 (216) ELT 662 (SC) – inapplicable.
Vikram Ispat v. Commissioner of Central Excise,
Mumbai-III 2000 (120) ELT 800 (Tribunal-LB) –
referred to.
Case Law Reference
E
[2014] 12 SCR 1037 followed Para 7
[2004] 3 Suppl. SCR 400 inapplicable Para 7
2007 (216) ELT 662 (SC) inapplicable Para 7

F [2013] 3 SCR 27 referred to Para 7
[2016] 11 SCR 700 relied on Para 7
[2010] 13 SCR 820 followed Para 32
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7157
of 2008.
G
From the Judgment and Order dated 17.07.2008 of the Customs,
Excise and Service Tax Appellate Tribunal, Principal Bench, New Delhi
in Customs Appeal No. 9 of 2008.
Ashok K. Srivastava, Sr. Adv., Rupesh Kumar, Ms. Pankhuri
H Shrivastava, Rajeev Sharma, Ms. Neelam Sharma, Ms. Vasvi Nagar,
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1049
OF CENTRAL EXCISE

Ms. Rekha Pandey, Ms. Rashmi Malhotra, B. Krishna Prasad, Advs. A
for the appearing parties.
The Judgment of the Court was delivered by
A. M. KHANWILKAR, J.
1. This appeal takes exception to the Final Order No. C/203/08 B
dated 17.7.2008 passed by the Customs, Excise & Service Tax Appellate
Tribunal1 in Customs Appeal No. 9 of 2008, whereby the customs duty
levied upon the appellant on the sale of cut flowers within the Domestic
Tariff Area2 had been confirmed by the Tribunal.
2. The factual matrix leading to the present appeal is that the C
appellant - M/s. L.R. Brothers Indo Flora Ltd. is a 100% Export Oriented
Unit3 and engaged in production of cut flowers and flower buds of all
kinds, suitable for bouquets and for ornamental purposes. The 100%
EOU is required to export all articles produced by it. As a consequence
whereof, it is exempted from payment of customs duty on the imported
inputs used during production of the exported articles, vide Notification D
No. 126/94-Cus dated 3.6.19944. Under the said notification, exemption
on levy of customs duty had been extended even to the inputs used in
production of articles sold in domestic market, in accordance with the
Export-Import (EXIM) Policy and subject to other conditions specified
by the Development Commissioner. To wit, upon payment of excise E
duty in case of excisable goods; and in case of non-excisable goods,
upon payment of customs duty on the inputs used for production,
manufacturing or packaging of such articles at a rate equivalent to the
rate of customs duty that would have been leviable on such articles, if
such articles were imported. The said notification was amended by
Notification No. 56/01-Cus dated 18.5.20015, by which the customs duty F
in case of non-excisable goods became leviable on inputs used for
production, manufacturing or packaging, as if there was no exemption
notification in place. The effect of this amendment was that the customs
duty on inputs which was charged at the rate equivalent to the duty
leviable on final articles under the exemption notification, was now G
chargeable at the rate specified for the inputs.
1
For short, “CESTAT”
2
For short, “DTA”
3
For short, “EOU”
4
For short, “the exemption notification”
5
For short, “the amendment notification” H
1050 SUPREME COURT REPORTS [2020] 10 S.C.R.

A 3. The EXIM Policy 1997-2002 provided that a 100% EOU in
floriculture sector was permitted to sell 50% of its produce in DTA,
subject to achieving positive net foreign exchange earning of 20% and
upon approval of the Development Commissioner. The appellant, without
obtaining the approval of the Development Commissioner and without
maintaining the requisite net foreign exchange earning, made DTA sales
B
to the extent of Rs.38,40,537/- during 1998-99 to 2000-01 (upto December
2000), in contravention of the provisions of EXIM Policy. Notably, the
appellant subsequently sought ex-post facto approval from the
Development Commissioner vide letter dated 6.2.2001.
4. Meanwhile, the Additional Commissioner, Central Excise,
C Meerut-I issued a show cause notice dated 16.3.2001 to the appellant
to show cause as to why customs duty, interest and penalty should not
be imposed for the DTA sales made by the appellant in contravention of
the EXIM Policy, that too after having availed the exemptions under the
exemption notification on the import of green house equipment, raw
D materials like Live Rose Plants and consumables like planting materials
and fertilizers. After according opportunity of being heard, the Additional
Commissioner adjudged the show cause notice and held that the DTA
sales were made without permission of the Development Commissioner
and in contravention of the EXIM Policy and therefore, customs duty is
leviable upon the appellant for the said sales. It was further held that the
E appellant had wilfully suppressed facts and thus Section 28 of the Customs
Act, 19626 was invoked in the present case. The relevant extract of the
Order-in-Original dated 18.10.2001 passed by the Additional
Commissioner, Central Excise, Meerut – I on the aforesaid findings is
reproduced hereunder:
F “3.1 I find that the party had imported the capital goods and
also imported raw materials like “Live Rose Plants” and
consumable like “Fertilizer and Planting Materials” during
1996-97 to 2000-2001 and further that they made
clearances towards Domestic Tariff Area sales without
G obtaining permission from the Competent Authority in the
matter. On scrutiny of the records, it was observed that before
making any DTA sales it was required that 20% positive Net
Foreign Exchange Earning (NFEP) should have been achieved
i.e. annual value of export should have been 20% more than
6
For short, “the 1962 Act”
H
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1051
OF CENTRAL EXCISE [A. M. KHANWILKAR, J.]

Rs.2,42,37,400/= (+) annual value of imports of raw materials A
and consumables during the respective year and the said noticee
had exported the flowers worth Rs.91,92,000/= only which are
well below prorata annual value of Import of capital goods.
3.2 I also find that as per condition of the approval letter No.
119(1994)EOB/34/94 dated 04.5.94, issued by Govt. of India, B
Ministry of Industries, Department of Industrial Development,
Secretarial for Industrial approval, MUCC Section, New Delhi,
the bonding period of M/s. L.R. Brothers Indo Flora Ltd., was
fixed for 10 years during which they were required to achieve
62% value addition over and above the imports and other factors
contributing towards the foreign exchange gone out of the country. C
As per the specific condition of the approval letter, the party
was required to export all of its production out of India
subject to permissible limit of Domestic Tariff Area Sales
(herein after referred to as DTA Sales) and that, too, after
specific permission from Development Commissioner of D
the EPZ concerned, on payment of applicable Customs &
Central Excise duties. The Export Import Policy 1997-2002
specifies the condition of DTA sales by an EOU.
In this regard, I reproduce below the contents of the relevant
paras of Export Import Policy 1997-2002….. E
3.3 Therefore, in view of the above legal provisions of the Export
Import Policy 1997-2002, it is amply clear that for earning DTA
sales entitlement the EOU should fulfil the export obligations as
prescribed in the letter of approval and also should have a positive
NFEP which is 20% in case of floriculture units. F
3.4 ..... As per Note 3 to paragraph 9.5 of the Export Import
Policy, as discussed above, prorata annual value of imported capital
goods (i.e. 1/5th of the total import of Capital Goods worth
Rs.12,11,87,000/- comes to Rs.2,42,37,400/-. Therefore, before
making any DTA sales it was required that 20% positive NFEP G
should have been achieved i.e. the annual value of export should
have been 20% more than Rs.2,42,37,400/- + annual value of
imports of raw materials and consumable during the respective
year, whereas in all the four years since operation, the unit had
exported the flowers worth Rs.91.92 lakhs only which are well
H
1052 SUPREME COURT REPORTS [2020] 10 S.C.R.

A below the prorata annual value of import of capital goods.
Therefore, in view of the specific provisions of the Export
Import Policy 1997-2002, the unit was not entitled to sell
any goods in DTA.
3.5 Moreover, the guidelines for sale of goods in the DTA by
B EOU are prescribed in Appendix 42 of Handbook of Procedure,
Export Import Policy 1997-2002. Para (f) of the said Appendix 42
reads as: “An application for DTA sale shall be accompanied by a
statement indicating the ex-factory value of the goods produced
(excluding rejects) and ex-factory value of goods actually exported.
The statement shall be certified by an independent cost/chartered/
C cost and works accountant and endorsed by the Customs/Central
Excise Officer having jurisdiction over the unit. The Development
commissioner of the EPZ concerned will determine the extent of
DTA sale admissible in value terms and issue goods removal
authorization in terms of value and quantity for sale in DTA.”
D However in the present case as per records, the party failed
to furnish the same application as well as permission, if any
to this department and did not follow the procedure as laid
down in the Hand Book of Procedure, Export Import Policy
1997-2002.
E 3.6 Apart from the above, the floriculture EOU may Import Capital
Goods and Raw Materials, without payment of Customs duties in
terms of Custom Notification No. 126/94 dated 3.6.94 and
accordingly M/s. L.R. Brother Indo, Flora Ltd., have imported
green house equipment, raw materials like Liver Rose Plants and
Consumable like planting materials and Fertilizers under the said
F notification. Para 3 of the said Notification reads as under :- ....
3.7 Therefore, from the above provision, it is clear that the units
working under the said Notification may sell their produced goods
in DTA on payment of excise duty as leviable under Section 3 of
Central Excise Act, 1944 if the goods are excisable and on payment
G of full Customs duties leviable on such goods as if imported as
such if the goods are non excisable. Cut Flowers or Flower Buds
are not covered under Central Excise Tariff Act, 1985 as Chapter
6 which covers such types of Flowers in Customs Tariff left blank
in Central Excise Tariff Act and, therefore, such types of Flowers
H will be treated as non excisable in view of Section 2 (d) of the
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1053
OF CENTRAL EXCISE [A. M. KHANWILKAR, J.]

Central Excise Act, 1944. Therefore, full Customs duties will be A
leviable on such Flowers, if sold in DTA treating such flowers as
imported into India, in terms of Notification No. 126/94-Cus dated
03.6.94. Further, M/s. L.R. Brothers Indo Flora Ltd., had made
DTA sales during the year 1998-99 to 2000-01 (upto December
2000) in contravention to the aforesaid provisions. Further, they
B
failed to show any permission from Development Commissioner
for sale of their goods in DTA. It appears that the Development
Commissioner has granted no such permission to them, as
they have not earned the DTA sale entitlement due to very
low exports in comparison to high quantum of imports. ......
3.8 I have also come to conclusion that M/s. L.R. Brothers Indo C
Flora Ltd., Behat Road, Saharanpur have contravened the
provisions of Import & Export Policy 1997-2002 and have not
fulfilled the conditions of Notification No. 126/94 dated 3.6.94.
Hence the party is liable to pay the full customs duty on cut flowers
sold in DTA, treating the flowers imported as such into India. D
Further, the said M/s. L.R. Brothers Indo Flora Ltd., have
been indulged in wilful suppression of facts, as aforesaid,
and sold the said goods viz., cut flowers falling under Ch.
S.H. No. 0603.10 of the Customs Tariff, in D.T.A. in
contravention of the provisions of Import Export Policy
1997-2002, without payment of Customs duty, hence E
extended period of five years as provided under proviso to
section 28 of the Customs Act 1962 is invokable in the
instant case. Therefore, all obligations were cast on such a large
undertaking to discharge the correct duty liability i.e. Customs
duty amounting to Rs.9,98,177.00. Therefore, demand of Customs F
duty stands recoverable from them. They are also liable to pay
interest @ 24% from the 1st day of the month succeeding the
month in which the duty ought to have been paid under Section
28AB of the Customs Act, 1962. ....”
(emphasis supplied) G
5. The Additional Commissioner, by way of aforesaid order,
confirmed the demand of customs duty of Rs.9,98,177/- under Section
28, interest at the rate of 24% under Section 28AB and penalty of
Rs.9,98,177/- under Section 114A of the 1962 Act. The appellant
unsuccessfully carried the matter in appeal before the Commissioner H
1054 SUPREME COURT REPORTS [2020] 10 S.C.R.

A (Appeals), Customs & Central Excise, Meerut-I, wherein the Order-in-
Original came to be confirmed by the Order-in-Appeal dated 29.7.2005
by holding thus:
“5. ....... In the light of the above facts, I find myself in agreement
with the findings of the adjudicating authority that the appellants
B have not earned the DTA sale entitlement due to very low exports
in comparison to high quantum of imports. Thus, the alleged
contravention of provisions of Import & Export Policy 1997-2002
and non-fulfilling of the conditions of the Notification 126/94-Cus
ibid is fully established against them. Therefore, the demand of
Customs duty along with interest in this case as per the impugned
C order is justified.
As regards the imposition of penalty on the appellants, I
find that the charges of contravention of provisions of Export &
Import Policy 1997-2002 & Notification No. 126/94 Cus dt.
03.06.94 stand proved against the appellants. They were aware
D that they were not entitled to make DTA sales of the subjected
goods, even then they made DTA sales of the same to evade
payment of duty. Hon’ble Supreme Court in the case of Gujarat
Travancore Agency vs. Commissioner of Income Tax 1989 (42)
ELT 350 (SC), has held that the penalty under Section 271(1)(a)
E of the Income Tax Act is a civil obligation and unless there is
something in language of the statute indicating the need to establish
element of mensrea, it is generally sufficient to prove that a default
in complying with the statute has occurred.
In view of the ratio of the aforesaid judgment of Apex Court,
F the penalty has been rightly imposed upon the appellant.
In view of the above, I find no infirmity in the order passed
by the adjudicating authority and therefore disallow the appeal.”
6. The matter was further carried in appeal before CESTAT
whereat the impugned order was passed confirming the order of the
G authorities below whilst also holding that amendment notification is
prospective and cannot be applied to the present case. The relevant
extract of the impugned order is reproduced below:
“5. We have carefully considered the submissions made from both
the sides. Irrespective of whether the DTA clearances of cut-
H flowers were, in contravention of the EXIM Policy or otherwise,
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1055
OF CENTRAL EXCISE [A. M. KHANWILKAR, J.]

the cut-flowers being non-excisable goods, their DTA clearance A
would attract, in terms of the provisions of para 3(a) of the
exemption Notification No. 123/94-CUS., only the Custom Duty
involved on the inputs used in the production of the cut-flowers.
The point of dispute is as to whether the Custom Duty payable on
the inputs used in the production of the cut-flowers which had
B
been cleared to DTA, is to be taken as an amount equal to Custom
Duty chargeable on the import of cut-flowers, as such, or it should
be the actual Custom Duty on the inputs used in the production of
cut-flowers cleared to DTA.
5.1 xxx xxx xxx
C
5.2 From reading of para 3(a) of the Notification No. 126/94-cus
as it existed during the period of dispute i.e. during the period
prior to 18.5.01 – and as it existed during period w.e.f. 18-5-01, it
is clear that during the period of dispute, the notification contained
a machinery provisions for determining, the Custom Duty
chargeable on the inputs used in the production of non-excisable D
goods cleared to DTA and as per this machinery provision, the
duty was to be in an amount equal to the Custom Duty chargeable
on the finished goods, as if imported, as such. However, after the
amendment of this Notification w.e.f. 18.5.01, the duty on the
inputs used in the production of non-excisable goods cleared to E
the DTA was to be calculated on actual basis. The amendment to
the Notification No. 126/94-CUS. w.e.f. 18.5.01 by the Notification
No. 56/01 can have only prospective effect and it cannot be given
retrospective effect. In view of this, during the period of dispute,
customs duty on the inputs used in the production of cut-flowers
cleared to DTA has to be calculated as per the provisions of the F
Notification, as it existed during that period.
6. The Tribunal’s judgment in the case of Vikram Ispat (supra) is
not applicable to the fact of this case, as in the present case what
is being charged in respect of DTA clearances of the cut-flowers
is not the customs duty on the cut-flowers, but the custom duty on G
the inputs used in the production of those cut-flowers, which as
per the provisions of Notification, as it existed at that time, was
equal to the Customs Duty chargeable on the import of cut-flowers,
as such. In the Tribunal’s judgment in case of Zygo Flowers Ltd.
(supra) and Cosco Blossoms Pvt. Ltd. (supra), the implications H
1056 SUPREME COURT REPORTS [2020] 10 S.C.R.

A of the wording of para 3(a) of the exemption notification during
the period of dispute - “or where such articles [including rejects,
waste and scrap material] are not excisable, on payment of Custom
Duty on the said goods used for the purpose of production,
manufacture or packaging of such articles in an amount equal to
the Custom Duty leviable on such articles, as if imported, as such”
B
had not been considered. If the Appellant’s view accepted, the
words “in an amount equal to the Custom Duty leviable on such
articles, as if imported, as such” would become redundant. It is
well settled principle of interpretation of statute that a statute has
to be construed without adding any words to it or subtracting any
C words from it and an interpretation which makes a part of the
statute redundant has to be avoided.
7. In view of the above discussion, we hold that the custom duty
has been correctly charged in respect of DTA clearances of the
cut-flowers and as such we find no infirmity in the impugned order.
D The appeal is accordingly dismissed.”
Thus, the levy of customs duty stood confirmed.
7. Being aggrieved, the appellant has approached this Court. The
thrust of the argument of the appellant is that according to Paragraph 3
of the exemption notification, sales made in DTA would attract excise
E duty and since the cut flowers sold by the appellant are non-excisable
goods, no excise duty can be levied upon it. Further, according to the
notification, in case of non-excisable goods, the customs duty is leviable
on the imported inputs. In the present case, since the cut flowers are
home grown, customs duty cannot be levied upon them and therefore,
F the demand of customs duty cannot be sustained. Reliance is placed on
the decisions of CESTAT in Cosco Blossoms Pvt. Ltd vs. Commissioner
of Customs, Delhi 7 and larger bench of Central Excise and Gold
(Control) Appellate Tribunal8 in Vikram Ispat vs. Commissioner of
Central Excise, Mumbai-III9. It is then urged that the exemption
notification predicates levy of customs duty on non-excisable goods sold
G in DTA sales to the extent of the value of inputs and not to the extent of
the value of final product. It is further urged that the amendment
notification is merely clarificatory and hence it would apply
7
2004 (164) ELT 423 (Tri.-Del.)
8
For short, “the CEGAT”
9
H 2000 (120) ELT 800 (Tribunal-LB)
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1057
OF CENTRAL EXCISE [A. M. KHANWILKAR, J.]

retrospectively. To buttress this submission, the appellant had placed A
reliance on Circular No. 31/2001-Cus dated 24.5.2001 issued by Central
Board of Excise and Customs, New Delhi10, which noted that the charge
of customs duty on the inputs equal to the duty leviable on the import of
final product is putting floriculture EOUs at a disadvantageous position.
The circular further envisages that the central excise notifications
B
provided for recovery of duty on inputs procured duty free, whereas the
exemption notification provided for recovery on inputs equal to duty on
the final product. That the amendment notification was issued to address
this anomaly and to harmonise the central excise and customs
notifications. The appellant placed reliance on the Constitution Bench
decision of this Court in Commissioner of Income Tax (Central) – I, C
New Delhi vs. Vatika Township Private Limited11, wherein it had been
observed that whenever the legislator intends to confer benefit upon a
person, it must be presumed to have retrospective effect. The appellant
relied upon yet another decision of this Court in Zile Singh vs. State of
Haryana & Ors.12 to contend that the substitution of a clause which
D
clarifies about the intent of the legislature takes effect from the date of
enactment of original provision. The appellant would further urge that
Section 12 of the 1962 Act being the charging section, could only be
applied if the goods are imported into India and since the cut flowers are
not imported, the show cause notice issued under the provisions of the
1962 Act is bad in law. In this regard, the appellant had placed reliance E
on Commissioner of Central Excise and Customs vs. Suresh
Synthetics13. The appellant further relied on the exposition of this Court
in Uniworth Textiles Limited vs. Commissioner of Central Excise,
Raipur14 to submit that Section 28 of the 1962 Act, extending limitation,
can be invoked only in the case of deliberate default and urged that it
F
cannot be invoked in the present case since there was no default.
8. Per contra, the respondent would urge that in the fact situation
of the present case, the department has correctly levied the customs
duty, as the DTA sales made were in contravention of the EXIM policy
and the appellant had no permission from the Development Commissioner
to clear the goods in DTA. The respondent further urged that the G

10
For short, the “CBEC Circular”
11
(2015) 1 SCC 1
12
(2004) 8 SCC 1
13
2007 (216) ELT 662 (SC)
14
(2013) 9 SCC 753 H
1058 SUPREME COURT REPORTS [2020] 10 S.C.R.

A amendment seeks to bring about a substantive change, whilst pointing
out that the CBEC Circular in its opening paragraph speaks about
“carrying out” the amendment. Further, the amendment must be applied
prospectively. Reliance is placed upon the decision of this Court in Union
of India & Anr. vs. IndusInd Bank Limited & Anr.15, wherein it has
been held that if the provision is remedial in nature, it cannot be construed
B
as clarificatory or declaratory and has to be applied prospectively.
9. We have heard Mr. Rupesh Kumar, learned counsel for the
appellant and Mr. Ashok K. Srivastava, learned senior counsel for the
respondent.
C 10. The issues that arise for consideration in this appeal are: (i)
Whether customs duty can be charged on the non-excisable goods
produced in India and sold in DTA by an EOU?; and (ii) Whether the
amendment in terms of Notification No. 56/01-Cus dated 18.05.2001,
purporting to amend the criteria for determination of duty on inputs, is
prospective or retrospective in its application?
D
11. At the outset, it is apposite to refer to the stated notification.
The relevant extract thereof reads as under:
“NOTIFICATION NO. 126/94-CUS DATED 3.6.1994
Exemption to import of specified goods for use in manufacture of
E export goods by 100% E.O.Us. - In exercise of the powers
conferred by sub-section (1) of section 25 of the Customs Act,
1962 (52 of 1962), the Central Government, being satisfied that it
is necessary in the public interest so to do, hereby exempts goods
specified in Annexure-I to this notification (hereinafter referred
F to as the goods), when imported into India, for the production or
manufacture of articles specified in Annexure-II for export out of
India or for being used in connection with the production,
manufacture or packaging of the said articles specified in
Annexure-II for export out of India (hereinafter referred to as
the specified purpose) by hundred per cent Export Oriented
G Undertakings approved by the Board of Approval for hundred
per cent Export Oriented Undertakings, appointed by the notification
of Government of India in the former Ministry of Industry and
Civil Supplies, (Department of Industrial Development) No.
S.0.163(E)/RLIU/10(2)76, dated the 3rd March, 1976 or the
15
H (2016) 9 SCC 720
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1059
OF CENTRAL EXCISE [A. M. KHANWILKAR, J.]

Development Commissioner concerned as the case may be, from A
thewhole of the duty of customs leviable thereon under the First
Schedule to the Customs Tariff Act, 1975 (51 of 1975) and
theadditional duty, if any, leviable thereon under section 3 of the
second mentioned Act, subject to the following conditions,
namely :-
B
(1) the importer has been granted the necessary licence for
the import of the said goods;
(2) the importer, at the time of import of the said goods,
produces to the Assistant Commissioner of Customs a certificate
from the Development Commissioner to the effect that the C
importer has executed a bond in such form and for such sum
as may be prescribed binding himself-
(a) to bring the said goods into his unit and to use
them for the specified purpose; and
(b) to dispose of the said goods or the articles D
produced, manufactured or packaged in the unit or
the waste, scrap or remanents arising out of such
production, manufacture or packaging in the manner
as may, if any, be prescribed in the Export-Import
Policy and in this notification;….. E
xxx xxx xxx
3. Notwithstanding anything contained in this notification, the
exemption contained herein shall also apply to the said goods which
on importation into India are used for the purposes of production,
manufacture or packaging of articles and such articles (including F
rejects, waste and scrap material arising in the course of production,
manufacture or packaging of such articles) even if not exported
out of India are allowed to be sold in India under and in accordance
with the Export-Import Policy and in such quantity and subject to
such other limitations and conditions as may be specified in this
G
behalf by the Development Commissioner, on payment of duty of
excise leviable thereon under section 3 of the Central Excises
and Salt Act, 1944 (1 of 1944) or where such articles (including
rejects, waste and scrap material) are not excisable, on
payment of customs duty on the said goods used for the
purpose of production, manufacture or packaging of such H
1060 SUPREME COURT REPORTS [2020] 10 S.C.R.

A articles, in an amount equal to the customs duty leviable
on such articles as if imported as such.)
Explanation.- For the purposes of this notification, “Export-Import
Policy” means Export and Import Policy, 1stApril, 1997 - 31stMarch,
2002, published by the Government of India in the Ministry of
B Commerce Notification No. 1/1997-2002, dated 31 stMarch, 1997,
as amended from time to time. …..”
(emphasis supplied)
12. A bare perusal of the above notification would evince that
apart from providing for duty free imports of inputs for an 100% EOU in
C order to export all the goods produced or manufactured by it, in addition,
it also gives liberty to the 100% EOUs to clear their goods in DTA to the
extent permissible by and in accordance with the EXIM policy. The
EXIM policy, at paragraph 9.9 provided that for earning an entitlement
to make sales in DTA, the unit has to maintain positive net foreign
D exchange earning. The calculation of net foreign exchange earning, as
defined at paragraph 9.29, is provided for at paragraph 9.5 of the Policy,
which had to be done as prescribed in Appendix I of the Policy. In case
of cut flowers, it has been fixed at 20% since it would come within the
category of “Products not covered above”.

E 13. On a combined reading of the notification with the conditions
laid down in the EXIM policy, it is clear that the fulfilment of the aforesaid
conditions is a condition precedent to become eligible to make DTA
sales. Resultantly, if goods are cleared in DTA sales in breach of the
aforesaid conditions, customs duty would be leviable, as if such goods
were imported goods.
F
14. Reverting to the first question, the appellant lays emphasis
that the DTA sales made by an 100% EOU can only be amenable to
excise duty and show cause notice under the provisions of the 1962 Act
could not have been issued. This ground finds support in the decision of
larger bench of the CEGAT in Vikram Ispat (supra), which the appellant
G relies upon. In paragraph 16 of the said decision, it has been held as
under:
“16. Notification No. 2/95-C.E., dated 4-1-95 provides that the
goods manufactured and cleared by a 100% E.O.U. to DTA will
be exempted from so much of duty of excise as is in excess of the
H amount calculated at the rate of 50% of each of duty of customs
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1061
OF CENTRAL EXCISE [A. M. KHANWILKAR, J.]

leviable read with any other notification for the time being in force A
on the like goods produced or manufactured outside India, if
imported into India provided that the amount of duty payable shall
not be less than the duty of excise leviable on like goods produced
or manufactured by the units in Domestic Tariff Area read with
any relevant notification. It is, thus apparent that notification No.
B
2/95 provides a minimum limit of the rate of duty which has to be
paid by the 100% E.O.U. while clearing the goods to DTA and
this limit is provided by the duty of excise leviable on like good
manufactured outside 100% E.O.U. However, if the aggregate
of duty customs leviable on goods cleared by 100% E.O.U. is
more than the duty of excise leviable on like goods, a 100% E.O.U. C
has to pay more duty. The Revenue wants to restrict the availment
of Modvat credit to the components of additional duty of customs
paid under Section 3 of the Customs Tariff Act by bringing the
fiction that 100% E.O.U. is a place which is not in India and the
sale therefrom within India is akin to import into India. We do not
D
find any substance in this view of the Revenue. The clearance
of the goods by 100% E.O.U. are not import in the terms
in which it has been defined under Section 2 (23) of the
Customs Act, according to which import, with its
grammatical and cogent expression means bringing into
India from a place outside India. This is also apparent from E
the fact that when the goods are cleared from 100% E.O.U.
to any place in India, central excise duty under Section 3(1)
of the Central Excise Act is levied and not the customs
duty under the Customs Act. If it is to be regarded as
import, then the duty has to be charged under Section 12
F
of the Customs Act, read with Section 3 of the Customs
Tariff Act. The Revenue, it seems is confusing the measure
of the tax with the nature of the tax. The nature of the duty
levied on the goods from 100% E.O.U. is excise duty and
nothing else, whereas for determining the quantum of duty
the measure adopted is duty leviable under Customs Act G
as held by the Supreme Court in many cases referred to
above.The method adopted by the law makers in recovering
the tax cannot alter its character. Once it is held that the
duty paid by the 100% E.O.U. in respect of goods cleared
to any place in India is excise duty, the question of
H
1062 SUPREME COURT REPORTS [2020] 10 S.C.R.

A dissecting the said duty into different components of basic
customs duty, auxiliary duty, additional duty of Customs or
any other customs duty does not arise. The proforma of AR-
1A on which the reliance was placed by the learned D.R., cannot
change the legal position that the duty levied on 100% E.O.U. is a
duty of excise and not customs duty.”
B
(emphasis supplied)
However, this exposition has no application to the fact situation of
the present case, in as much as there had been no contravention of
conditions of EXIM Policy and the issue was only about the nature of
C tax, in case of goods otherwise amenable to excise duty.
15. Concededly, the DTA sales pertaining to excisable goods made
in conformity with the conditions of the EXIM policy are exigible to
excise duty, but once there is contravention of the condition(s) of the
EXIM policy, irrespective of the goods produced being excisable or non-
D excisable, the benefit under the exemption notification is unavailable. In
such a situation, the very goods would become liable to imposition of
customs duty as if being imported goods.
16. We may now examine as to what would be the position in
case of sale of non-excisable goods as per conditions specified under
E the EXIM policy. Assuming there was no contravention of the EXIM
policy, in case of the goods cleared being non excisable, the Paragraph 3
of the exemption notification would come into play and the duty would
be leviable on the inputs used in such goods. It is relevant to bear in mind
Section 12 of the 1962 Act here, being the charging section, as is set out
hereunder:
F
“Section 12 – Dutiable Goods
(1) Except as otherwise provided in this Act, or any other law for
the time being in force, duties of customs shall be levied at such
rates as may be specified under the Customs Tariff Act, 1975 (51
G of 1975), or any other law for the time being in force, on goods
imported into, or exported from, India.
(2) The provisions of sub-section (1) shall apply in respect of all
goods belonging to Government as they apply in respect of goods
not belonging to Government.”
H
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1063
OF CENTRAL EXCISE [A. M. KHANWILKAR, J.]

It is clear from the above provision that the goods which are A
imported shall be charged as specified under the Customs Tariff Act,
1975 or “any other law”, unless exempted under the 1962 Act or by
“any other law”.
17. In the present case, the notification provides for exemption on
import of inputs and at the same time prescribes for adherence of certain B
conditions for availing the exemption. The notification further prescribes
the rate at which the customs duty on the inputs used in the production
of non-excisable goods sold in DTA is to be charged. Thus, the
notification, having been issued in exercise of delegated legislation under
Section 25 of the 1962 Act, has to be understood as “any other law”. C
Resultantly, the appellant, having availed exemption under the notification,
cannot evade customs duty on the imported inputs at the rate prescribed
by the notification.
18. The show cause notice points out that the appellant imported
raw materials like “Live Rose Plants” and consumables like fertilizers D
and planting materials, however, the appellant advisedly chose to confine
its argument to “cut flowers”, which, as contended, were grown on Indian
soil and thus not amenable to customs duty. However, the demand made
in the show cause notice “treating” cut flowers as deemed to have been
imported was only for the purpose of quantification of the customs duty
on the imported inputs and not imposition of the customs duty on the E
domestically grown cut flowers as such.
19. The decision of CESTAT in the case of Cosco Blossoms
(supra) is of no avail to the appellant. In that case, the tribunal had relied
upon the decision in Vikram Ispat (supra) and held that the cut flowers
cleared in DTA sales cannot be charged with customs duty, without F
considering that the goods were non excisable. Notably, the Tribunal
had granted liberty to the authorities to charge customs duty upon the
imported inputs, if used in production of the goods cleared in DTA, which
supports the case of the respondent. Paragraph 5 of the aforesaid order
reads as under: G
“5. It is well settled [2000 (120) E.L.T. 800] that goods produced
in an EOU cannot be treated as imported goods and subjected to
customs duty. The duty payable in respect of such goods is the
duty of excise under Section 3 of the Central Excise Act, 1944.
H
1064 SUPREME COURT REPORTS [2020] 10 S.C.R.

A Therefore, the duty demand made in the impugned order under
Section 28 of the Customs Act is not sustainable. Accordingly, we
set aside the impugned order and allow the present appeal.
However, we make it clear that revenue authorities will be
at liberty to demand duty on the imported inputs, if any,
used in the production of the cut-flowers in question.
B
The appeal is disposed of as above.”
(emphasis supplied)
20. A priori, the demand in the present case, pertaining to the non-
excisable goods has rightly been made under the 1962 Act upon the
C imported inputs used in the production of goods sold in DTA in violation
of condition(s) in the EXIM Policy.
21. The decision of CESTAT in Suresh Synthetics (supra) is not
applicable to the present case. The goods in that case were Polyster
Textured Yarn, which are excisable goods. The investigations were made
D as per provisions of the Central Excise Act, 194416, however, show cause
notice was issued under provisions of the 1962 Act. Thus, it was held
that the demand is not maintainable as it was made under a defective
show cause notice.
22. In case of excisable goods, even the present notification takes
E resort to Section 3 of the 1944 Act, as can be seen from the Paragraph
3 of the notification extracted above. Whereas, the provisions of the
1962 Act are invoked only when the goods are non-excisable. In the
present case, since the cut flowers are non-excisable goods, the demand
for payment of customs duty had rightly been made vide show cause
F notice under the provisions of the 1962 Act.
23. Moving to the second question, the show cause notice was
issued to the appellant prior to the issuance of the amendment notification.
In this backdrop, let us now examine the contention of the appellant that
the amendment notification being retrospective in its application. The
relevant portion of the said notification is reproduced hereunder:
G
“NOTIFICATION NO. 56 /2001-CUS DATED 18.5.2001
In exercise of the powers conferred by sub-section (1) of section
25 of the Customs Act, 1962 (52 of 1962), the Central Government
16
H For short, “the 1944 Act”
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1065
OF CENTRAL EXCISE [A. M. KHANWILKAR, J.]

being satisfied that it is necessary in the public interest so to do, A
hereby directs that each of the notifications of the Government of
India in the Ministry of Finance (Department of Revenue),
specified in column (2) of the Table hereto annexed shall be
amended or further amended, as the case may be, in the manner
specified in the corresponding entry in column (3) of the said Table.
B
TABLE
Sr.No Notification No. Amendment
and Date
(1) (2) (3)
xxx Xxx xxx
In the said noti fication,- C
(a) in the first paragraph, in condition (6),
after clause (d), the following shall be
inserted, namely: -
" (e) permit destructi on of rej ect s and waste
without payment of duty within the unit, or
outside the said unit , where it is not
possible or permissible to destroy the same
D
within the said unit, in the presence of
Customs or Central Excise officer.";
(b) in paragraph 2, in the proviso, for the
words and figures "duty of 15% ad
valorem", the words and figure "duty of
5% ad valorem" shall be substituted;
(c) in paragraph 3, in clause (a), for the E
126/94-Cus dated
8. words "on payment of customs duty on
the 3 rd June, 1994
the said goods used for the purpose of
production, manufacture or packaging
of such articles in an amount equal to
the customs duty leviabl e on such
articles as if imported as such.", the
following shall be substituted, namely:- F
"custom s duty equal in amount to that
leviable on inputs obtained under this
notification and used for the purpose of
production, manufacture or packaging
of such articles, which would have been
paid, but for the exemption under this
notification, shall be payable at the time
of clearance of such articles. G
….."
(emphasis supplied)

24. As can be seen, the aforesaid notification posits of carrying
out amendments and substituting the charging clause of the inputs used
H
1066 SUPREME COURT REPORTS [2020] 10 S.C.R.

A in case of non-excisable goods. The language employed in the notification
does not offer any guidance on whether the amendments as made were
to apply prospectively or retrospectively. It is a settled proposition of law
that all laws are deemed to apply prospectively unless either expressly
specified to apply retrospectively or intended to have been done so by
the legislature. The latter would be a case of necessary implication and
B
it cannot be inferred lightly.
25. In this regard, the appellant has heavily relied upon the CBEC
Circular to contend that the Government intended to apply the notification
retrospectively as it was brought in to address an anomaly, which existed
vis a vis central excise notifications. The relevant portion of the CBEC
C Circular is extracted hereunder:
“Circular No. 31/2001-Cus, dated 24-5-2001
xxx xxx xxx
(xi) Duty on DTA Clearance of Non-Excisable Goods;
D
25. At present, the EOUs and units operating under EPZ/STP/
EHTP Schemes are allowed to sell finished products (including
rejects, waste & scrap) in the Domestic Tariff Area (DTA) on
payment of applicable excise duty as per proviso to Section 3 of
the Central Excise Act, 1944. However, the same is applicable if
E the goods being cleared into DTA are excisable goods. Under the
present dispensation, the notifications providing duty free import
of goods under the above said Schemes stipulate that where the
finished products (including rejects, wastes & scrap) sought to be
cleared in DTA are not excisable, such products are allowed to
F be cleared on payment of customs duty on the inputs used for the
purpose of production, manufacture, processing or packaging such
products in an amount equal to the customs duty leviable on such
products as if imported as such.
26. It has been brought to notice of the Board that in some
Commissionerates, the floriculture units under the EOU Scheme
G
are being asked to pay duty equivalent to the customs duty leviable
on finished goods as if imported as such, for clearance of cut-
flowers, which is not an excisable commodity. It has also been
stated that the DTA units are not required to pay any duty for sale
of cut-flowers, as the same are not excisable. This is stated to
H
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1067
OF CENTRAL EXCISE [A. M. KHANWILKAR, J.]

have placed the floriculture units in EOUs at a serious A
disadvantageous position vis-a-vis DTA units.
27. The matter has been examined. In the central excise
notifications governing duty free procurement by EOUs and units
under EPZ/STP/ETHP Schemes, there is a provision to recover
duty on the inputs & consumables procured duty free under B
exemption notification, which have gone into production of non-
excisable goods cleared into DTA. In the notifications
governing duty free import by EOUs and the EPZ/STP/
EHTP units, the anomaly, however, exists inasmuch as the
notifications talk about payment of customs duty on the
inputs used in the manufacture of articles in an amount equal C
to the customs duty leviable on such articles as if imported
as such. In order to remove this anomaly, all the notifications
governing duty free import of goods by STP/EHTP/EPZ units
and EOUs including those in Aquaculture and Agriculture sector
have been amended so as to bring the provisions of these D
notifications in harmony with the provisions of corresponding
Central Excise notifications. Notification No. 56/2001-Cus, dated
18-5-2001 may be seen for details.”
(emphasis supplied)
26. Upon a bare reading of the circular, it can be noted that it E
discusses the mechanism in force before the amendment, the reason for
bringing in the change and the changes brought in. The circular does not
mention that the earlier methodology in force was deficient or devoid of
clarity in any manner. It rather says that the same was being
disadvantageous to the EOU units as compared to the DTA units due to F
the difference in charging rates in the respective circulars. Upon
considering that, the amendment has been brought in to establish parity
with the excise notifications and to vindicate the disadvantage that earlier
regime was causing to EOU units. Merely because an anomaly has
been addressed, it cannot be passed off as an error having been rectified.
Unless shown otherwise, it has to be seen as a conscious change in the G
dispensation, particularly concerning the fiscal subject matters. The word
“anomaly” has been defined in Webster’s New Twentieth Century
Dictionary to mean “abnormality; irregularity; deviation from the regular
arrangement, general rule or the usual method”.
H
1068 SUPREME COURT REPORTS [2020] 10 S.C.R.

A 27. In the context of the subject circular, since it takes note of the
previous arrangement and distinguishes it from the excise notifications,
the meaning has to be taken as deviation from the regular arrangement,
which by no stretch of imagination can be treated as a mere mistake. To
call the amendment notification clarificatory or curative in nature, it would
require that there had been an error/mistake/omission in the previous
B
notification which is merely sought to be explained.
28. To understand if the Government brought in the amendment
notification to clarify that the articles were to be charged at the rate of
duty provided for inputs and not for the final articles, it would be necessary
to analyse the position prior to the amendment and to see if duty on
C inputs chargeable at the rate of final articles was an error that crept in.
In this regard, we may refer to Section 3 of the 1944 Act as it stood
during the relevant period, which is set out hereunder:
“Section 3. Duties specified in the First Schedule and the Second
Schedule to the Central Excise Tariff Act, 1985 to be levied-
D
(1) There shall be levied and collected in such manner as may be
prescribed,-
(a) a duty of excise on all excisable goods which are produced
or manufactured in India as, and at the rates, set forth in the
E First Schedule to the Central Excise Tariff Act, 1985 (5 of
1986);
(b) a special duty of excise, in addition to the duty of excise
specified in Clause (a) above, on excisable goods specified in
the Second Schedule to the Central Excise Tariff Act, 1985 (5
F of 1986) which are produced or manufactured in India, as, and
at the rates, set forth in the said Second Schedule.
Provided that the duties of excise which shall be
levied and collected on any excisable goods which are
produced or manufactured,—
G (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
H of customs which would be leviable Under Section 12 of
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1069
OF CENTRAL EXCISE [A. M. KHANWILKAR, J.]

the Customs Act, 1962 (52 of 1962), on like goods A
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 goods shall, notwithstanding anything
contained in any other provision of this Act, be
B
determined in accordance with the provisions of the
Customs Act, 1962 (52 of 1962) and the Customs Tariff
Act, 1975 (51 of 1975).”
(emphasis supplied)
The proviso to the charging section of the 1944 Act provides that C
an EOU making DTA sales shall be charged duty as if the goods were
imported into India and in value equal to the customs duty chargeable
thereto. No doubt, the said provision applies only in cases of excisable
goods, but the exemption notification providing for similar duty by terms
thereunder for non-excisable goods, can be understood to have been
made to equate the duty in case of excisable as well as non-excisable D
goods. Therefore, it must follow that the said provision was not an error
that crept in but was intentionally introduced by the Government to
determine the charging rate, as discussed above. That being the position
prior to amendment, the amendment brought in cannot be said to be
clarificatory in nature. E
29. The decision of this Court in Zile Singh (supra) is of no avail
to the appellant. In as much as it was a case of poor choice of words by
the draftsmen, which led to absurdity in interpretation and a subsequent
substitution of such words to make the intention clear. In the present
case, as discussed above, there was no error present in the prevailing F
dispensation and it was a policy decision to give relief to the EOU units
from the date of its amendment.
30. In Vatika Township (supra), Constitution Bench of this Court
has analysed the principle concerning retrospectivity. The appellant heavily
relies upon the observation made at paragraph 30 of the decision, which G
reads thus:
“30. ... If a legislation confers a benefit on some persons but
without inflicting a corresponding detriment on some other person
or on the public generally, and where to confer such benefit
appears to have been the legislators’ object, then the presumption
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1070 SUPREME COURT REPORTS [2020] 10 S.C.R.

A would be that such a legislation, giving it a purposive construction,
would warrant it to be given a retrospective effect. …”.
The appellant clearly misinterprets the context of the above
observation by reading the same in isolation. To have a better
understanding of the said principle, it is relevant to read the preceding
B and subsequent paragraphs. We may here refer to Paragraph 32 of the
said decision, which is extracted below:
“32. Let us sharpen the discussion a little more. We may note that
under certain circumstances, a particular amendment can be treated
as clarificatory or declaratory in nature. Such statutory provisions
C are labelled as “declaratory statutes”. The circumstances under
which provisions can be termed as “declaratory statutes” are
explained by Justice G.P. Singh in the following manner:
“Declaratory statutes
The presumption against retrospective operation is not
D applicable to declaratory statutes. As stated in CRAIES and
approved by the Supreme Court: ‘For modern purposes a
declaratory Act may be defined as an Act to remove doubts
existing as to the common law, or the meaning or effect of any
statute. Such Acts are usually held to be retrospective. The
E usual reason for passing a declaratory Act is to set aside what
Parliament deems to have been a judicial error, whether in the
statement of the common law or in the interpretation of statutes.
Usually, if not invariably, such an Act contains a Preamble,
and also the word “declared” as well as the word “enacted”.’
But the use of the words ‘it is declared’ is not conclusive that
F the Act is declaratory for these words may, at times, be used
to introduced new rules of law and the Act in the latter case
will only be amending the law and will not necessarily be
retrospective. In determining, therefore, the nature of the Act,
regard must be had to the substance rather than to the form. If
G a new Act is ‘to explain’ an earlier Act, it would be without
object unless construed retrospective. An explanatory Act is
generally passed to supply an obvious omission or to
clear up doubts as to the meaning of the previous Act. It
is well settled that if a statute is curative or merely
declaratory of the previous law retrospective operation
H
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is generally intended. The language ‘shall be deemed A
always to have meant’ is declaratory, and is in plain terms
retrospective. In the absence of clear words indicating
that the amending Act is declaratory, it would not be so
construed when the pre-amended provision was clear
and unambiguous. An amending Act may be purely
B
clarificatory to clear a meaning of a provision of the
principal Act which was already implicit. A clarificatory
amendment of this nature will have retrospective effect and,
therefore, if the principal Act was existing law which the
Constitution came into force, the amending Act also will be
part of the existing law.” C
The above summing up is factually based on the judgments of this
Court as well as English decisions.”
Upon reading the observations at Paragraph 30 and juxtaposed
with paragraph 32, it is crystal clear that an essential requirement for
application of a legislation retrospectively is to show that the previous D
legislation had any omission or ambiguity or it was intended to explain an
earlier act. In absence of the above ingredients, a legislation cannot be
regarded as having retrospective effect.
31. In IndusInd Bank (supra), this Court, while examining whether
the amendment made to Section 28 of the Indian Contract Act, 1872 E
was prospective or retrospective, has noted that the said provision is
remedial in nature and not clarificatory, since prior to the amendment,
the rights and liabilities accrued were sought to be taken away. Paragraph
24 of the said decision is reproduced below:
“24. On a conspectus of the aforesaid decisions, it becomes clear F
that Section 28, being substantive law, operates prospectively, as
retrospectivity is not clearly made out by its language. Being
remedial in nature, and not clarificatory or declaratory of
the law, by making certain agreements covered by Section
28(b) void for the first time, it is clear that rights and G
liabilities that have already accrued as a result of
agreements entered into between parties are sought to be
taken away. This being the case, we are of the view that both the
Single Judge and the Division Bench were in error in holding that
the amended Section 28 would apply.”
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1072 SUPREME COURT REPORTS [2020] 10 S.C.R.

A We are in agreement with the respondent that this decision squarely
applies to the present case as prior to the amendment, the DTA sales
made by the appellant have already attracted liability at the prescribed
charging rate, which in facts of the present case cannot be undone in
reference to the subject amendment.
B 32. It is relevant here to advert to a decision of Constitution Bench
of this Court inCommissioner of Central Excise, New Delhi vs. Hari
Chand Shri Gopal & Ors.17, wherein it has been held that an exemption
clause ought to be strictly construed according to the language employed
therein and in case of any ambiguity, benefit must go to the State. It will
be useful to reproduce paragraphs 29 and 30 of the aforesaid decision
C hereunder:
“29. The law is well settled that a person who claims exemption
or concession has to establish that he is entitled to that exemption
or concession. A provision providing for an exemption, concession
or exception, as the case may be, has to be construed strictly with
D certain exceptions depending upon the settings on which the
provision has been placed in the statute and the object and purpose
to be achieved. If exemption is available on complying with
certain conditions, the conditions have to be complied with.
The mandatory requirements of those conditions must be
E obeyed or fulfilled exactly, though at times, some latitude can
be shown, if there is a failure to comply with some requirements
which are directory in nature, the non-compliance of which would
not affect the essence or substance of the notification granting
exemption.

F 30. In Novopan India Ltd. this Court held that a person, invoking
an exception or exemption provisions, to relieve him of
tax liability must establish clearly that he is covered by the
said provisions and, in case of doubt or ambiguity, the benefit
of it must go to the State. A Constitution Bench of this Court in
Hansraj Gordhandas v. CCE and Customs held that (Novopan
G India Ltd. case, SCC p. 614, para 16)
“16. … such a notification has to be interpreted in the
light of the words employed by it and not on any other
basis. This was so held in the context of the principle
17
H (2011) 1 SCC 236
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER 1073
OF CENTRAL EXCISE [A. M. KHANWILKAR, J.]

that in a taxing statute, there is no room for any A
intendment, that regard must be had to the clear meaning
of the words and that the matter should be governed
wholly by the language of the notification i.e. by the plain
terms of the exemption.” ”
Applying the aforequoted dictum to the present case, the appellant B
was obliged to comply with the conditions prescribed by the EXIM Policy,
to avail the exemption under the stated notification; and failure to do so,
must denude them of the exemption so granted. Further, since the charging
rate prescribed under the exemption notification is under question, any
ambiguity in regard to the date of application of the amendment thereto
would necessarily have to be construed in favour of the State, unless C
shown otherwise by judicially acceptable parameters.
33. The next contention of the appellant is that Section 28 of the
1962 Act cannot be invoked to extend the limitation as there was no
wilful mis-statement or suppression of facts on behalf of the appellant.
The decision of this Court in Uniworth Textiles (supra), has been relied D
upon by the appellant. The same explains the situations in which Section
28 of the 1962 Act can be invoked. It had been held in the said decision
that the extension of limitation for a period of five years can be done
only in cases of deliberate default and not inadvertent non-payment. It
was further held that the burden for proving mala fide conduct is on the E
revenue; and specific averments in that regard must find place in the
show cause notice.
34. In the fact situation of the present case, the appellant was
issued a show cause notice mentioning that it had suppressed the DTA
sales of cut flowers to evade payment of duty. Had the appellant in good F
faith believed that no duty was payable upon the DTA sales of cut flowers,
it would have sought prior approval of the Development Commissioner,
which it failed to do. Even in the letter seeking ex-post facto approval,
the appellant claimed that they had not used any imported input such as
fertilizer, plant growth regulations, etc. in growing flowers sold in DTA,
despite having imported green house equipment, raw materials like Live G
Rose Plants and consumables like planting materials and fertilizers.
Therefore, it prima facie appeared that suppression by the appellant
was “wilful”. The burden of proving to the contrary rested upon the
appellant, which the appellant failed to discharge by failing to establish
that the imported inputs were not used in the production of the cut flowers H
1074 SUPREME COURT REPORTS [2020] 10 S.C.R.

A sold in DTA. In view thereof, the authorities below have rightly invoked
Section 28 of the 1962 Act and allied provisions.
35. In light of the foregoing discussion and observations, we are
of the view that CESTAT has rightly upheld the levy of customs duty.
36. This appeal, therefore, deserves to be dismissed. It is so
B ordered. There shall be no order as to costs. Pending applications, if any,
shall stand disposed of.

Ankit Gyan Appeal dismissed.

C

D

E

F

G

H