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M/s. L R Brothers Indo Flora Ltd. Vs Commissioner of Central Excise

Author: Aayush Gautam, Lawyer.


Date of decision: September 1, 2020 

Bench: A.M Khanwailkar J., Dinesh Maheshwari J., Sanjiv Khanna J.

Judgement by: A.M Khanwailkar J.

Original copy: View 


Issues in question:

  • Whether customs duty can be charged on the non­ excisable goods produced in India and sold in DTA by an EOU?
  • Where the amendment in terms of Notification No. 56/01- CUS dt. 18.05.2001, purporting to amend the criteria for determination of duty on inputs, is prospective or retrospective in its application? 

Background of the case:

  • M/s. L .R. Brothers Indo Flora Ltd. is engaged in the production of cut flowers and flower buds of all kind. Aforesaid company is a 100% Export Oriented Unit and a 100% EOU company is required to export all the articles produced by it. 
  • The above-mentioned company was exempted to pay customs duty according to vide notification no.126/94 cus dt. 3.6.1994. According to said notifications the exemptions were made on levy of customs duty on the imported inputs used in the production of exported goods and inputs used in the production of goods to be sold in the domestic market, in accordance with the Export-Import Policy (EXIM Policy) and conditions specified by the Development Commissioner. 
  • The said notification was amended by notification no.56/01 cus dt. 18.05.2001. Under the said notification the customs duty for non-excisable goods became leviable on the inputs used for production, manufacturing or packaging according to the rate specified for the inputs. 
  • According to the EXIM Policy 1997-2002, any company being a 100% EOU  involved in the floriculture sector was permitted to sell 50% of its products in the Domestic Tariff Area (DTA) subject to certain conditions: 
  1. i) On achieving positive net profit foreign exchange earning of 20%.
  2. ii) On approval of Deputy Commissioner.
  • The said company sold its 50% produce in DTA in contravention to the conditions laid down by the EXIM Policy 1997-2002. The said company sought ex post facto approval from the development commissioner. A show-cause notice was issued by the Deputy Commissioner, Central Excise Meerut-I.
  • The deputy commissioner passed the order against the company. The said order was challenged before the Commissioner (Appeals), Customs & Central Excise, Meerut-I and the order of Deputy Commissioner were upheld. The matter was further carried in appeal before CESTAT where an order was passed confirming the order of Commissioner. Being aggrieved the company approached the Apex court by relying upon Vikram Ispat vs Commissioner of Central Excise, Mumbai-III by a larger bench of Central Excise and Gold (Control) Appellate Tribunal. 


  • Hon’ble Supreme Court held that when there is a contravention of conditions of the EXIM Policy, irrespective of goods being excisable or non- excisable the exemption under the notification is not available.
  • The Apex court clarified that the sale of non – excisable goods should be done according to the EXIM Policy and duty will be leviable on the inputs used in such goods. 
  • According to the court, the exemption notification will be considered as “ any other law” u/s 25 of the Customs Act 1962.
  • Answering the second issue of the case the court held that on simple reading of the said notification we came to a conclusion that there is no mention of whether the amendments will apply prospectively or retrospectively. If there is no mention of whether the amendments will apply prospectively or retrospectively then the amendments are deemed to apply prospectively.
  • Hon’ble came to the conclusion that the appellant suppressed the DTA sales to evade the payment of duty. The appellant was required to take prior approval from the Development commissioner which the appellant failed to do so. The appellant hides the fact of using imported inputs for growing flowers that were sold in DTA hence this act of the appellant was a willful act and is liable to pay customs duty. The judgement of CESTAT was upheld and the appeal of the appellant was dismissed.

Critical analysis:

  • In this case, the Appellant argued that DTA sales made by 100% EOU can be amenable to excise duty and no show cause notice can be issued under the Customs Act 1962. The appellant relied upon para 16 of the Vikram Ispat case, to which the court said that in the aforesaid case there is no violation of EXIM Policy whereas in the Appellant case there is a violation of EXIM Policy. The Appellant further relied upon the Suresh Synthesis Case to which the court held that the goods, in this case, are Polyester textured yarn which is an excisable goods. 
  • On the second issue of this case, the appellant relied upon the CBEC Circular to prove that the notification issued by the government was with the intent to apply retrospectively. The court said that the circular simply talks about the mechanism in force before the amendment. The court came to the conclusion that if there is no specific mention of the amendment being applied retrospectively then in that situation the amendment will apply prospectively.
  • The Hon’ble Supreme Court heard the arguments and cases on which their arguments were relied upon. The court did not find any similarities in the cases highlighted by the appellant. The court relied upon the judgement in the case of IndusInd Bank to answer the second question in this case. 
  • The decision of the Supreme court is delivered with utmost sincerity towards the truth of the situation and has gone through all facts thoroughly. Justice was delivered.    

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