Minimum Import Price Not Applicable To Domestic Tariff Clearances By 100% EOUs: CESTAT Ahmedabad

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 3 March held that the Minimum Import Price (MIP) set by the Directorate General of Foreign Trade (DGFT) cannot be used to increase the assessable value of goods cleared by a 100% Export Oriented Unit (EOU) to the Domestic Tariff Area (DTA) unless there is evidence of undervaluation.

The Bench, comprising Judicial Member Somesh Arora and Technical Member Satendra Vikram Singh, partly allowed Exotic Granite LLP's appeal against the Commissioner of Central Excise, Kutch, setting aside a Rs. 3.33 crore duty demand while upholding a smaller Rs. 28.59 lakh duty.

Quoting from an earlier Tribunal decisions in Cristal Granites and Marbles Pvt Ltd, the Bench observed:

“The minimum import price fixed for imports cannot be automatically considered as cost of raw material or basis for determining the sale price. When the sale is to independent buyers and price is the sole consideration, there is no reason to reject the transaction value.”

Exotic Granite LLP, a 100% EOU engaged in manufacturing polished granite slabs and tiles, had cleared certain quantities of polished granite into the DTA.

During record scrutiny, the Department alleged that the company undervalued its DTA sales, as the prices were below the DGFT's Minimum Import Price of USD 80 per square meter for imported granite. It issued a show-cause notice demanding Rs. 3.62 crore in Central Excise duty, along with interest and penalty.

The Commissioner confirmed the demand and imposed the penalty, after which the assessee approached the Tribunal.

The Tribunal ruled that DTA clearances by a 100% EOU are not imports, and the DGFT notification prescribing minimum import price cannot determine the value of domestically manufactured goods.

It emphasised that valuation must follow Section 14 of the Customs Act read with the Customs Valuation Rules, and the transaction value cannot be rejected without evidence of manipulation or special circumstances.

The Department had relied solely on the DGFT notification and produced no evidence of undervaluation.

Therefore, the Tribunal set aside the major duty demand of Rs. 3.33 crore. However, it held that the assessee was not entitled to concessional duty under Notification No. 23/2003-CE for certain advance DTA sales under para 6.8(k) of the Foreign Trade Policy, because:

• The appellant failed to execute the required differential duty bond, which was a condition for operating the advance DTA permission.
• The assessee suppressed the specific sub-para 6.8(k) in its ER-2 returns, though it mentioned general Para 6.8.
• The Notification 23/2003-CE does not cover advance DTA sales under para 6.8(k) as an eligible category.

The Tribunal upheld a smaller demand of Rs. 28.59 lakh with interest, but removed the penalty, noting there was no evidence of mens rea.

Accordingly, the Tribunal partly allowed Exotic Granite LLP's appeal, cancelling the major duty demand while sustaining the smaller one.

Appearance for the Appellant: Shri Manish Jain, Advocate with Ms. Surbhi Chandani, Advocate

Appearance for the Respondent: Shri Rajesh R Kurup, Superintendent (AR) appeared for the Respondent