Once Development Commissioner grants Permission, it cannot be Challenged by Revenue: CESTAT sets aside Excise Duty Recovery Orders on Cipla Ltd [Read Order]

In a recent ruling, the Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) set aside excise duty recovery on Cipla Limited stating that once the development commissioner grants permission, it cannot be challenged by revenue.

Cipla Limited, the appellant is a 100% Export Oriented Unit ( EOU ) operating under the Foreign Trade Policy ( FTP ). The appellant was permitted to sell a portion of its goods in the Domestic Tariff Area ( DTA ), subject to paying applicable duties under section 3 of the Central Excise Act, 1944, which would be similar to duties applicable on imported goods.

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The entitlement to these DTA clearances was based on the free-on-board ( FOB ) value of exports and up to 50% of this value could be cleared in the DTA. Between April 2008 and November 2012, the appellant sold two pharmaceutical products, Artesunate and Venlafaxine, into the domestic market.

The Central Excise Department alleged that these DTA clearances exceeded the permissible limits under notification no. 23/2003-CE dated 31st March 2003, which stipulates conditions for duty exemptions under section 5A of the Central Excise Act.

The Department claimed that Cipla cleared these products beyond the allowed 90% ceiling of export value and thus demanded recovery of Rs. 2,27,98,495 as differential duty, along with interest and an equal penalty.

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The adjudicating authority interpreted the term ‘products’ in the notification to include both Artesunate and Venlafaxine. The decision was based on strict compliance with Supreme Court rulings in Indian Aluminium Co Ltd v. Thane Municipal Corporation and Mihir Textiles Ltd v. Collector of Customs, Bombay, which emphasize strict adherence to duty exemptions.

The appellant appealed the recovery order before the Mumbai bench of CESTAT where the appellant’s counsel argued that both products, Artesunate and Venlafaxine, were bulk drugs and were compliant with the Foreign Trade Policy.

The counsel further argued that the clearance for DTA sales was approved by the jurisdictional Development Commissioner, and the appellant claimed this approval confirmed their eligibility.

The two-member bench comprising C J Mathew ( Technical Member ), and Ajay Sharma ( Judicial Member ) recognized that the Development Commissioner had the jurisdiction to approve DTA sales, and any dispute over the interpretation of sales limits should have been taken up with this authority rather than unilaterally by the excise authorities.

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The Tribunal referred to the Ginni International Ltd. v. CCE case, where it was held that once the Development Commissioner had granted permission, it should not be questioned by the Revenue.

CESTAT also pointed out that the Customs authorities seemed to have interpreted the term "products" too narrowly, leading to the incorrect application of the notification and duty demands.

Therefore, the tribunal set aside the order demanding the duty and penalty, remanding the case back to the adjudicating authority for reconsideration. The tribunal instructed to refer to the Development Commissioner for clarification on the DTA sales entitlement, particularly concerning the interpretation of "products" and the percentage limits for DTA sales under the FTP.

To Read the full text of the Order CLICK HERE

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