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Sarla Performance Fibers Limited Etc. v. Commissioner of Central Excise, Surat-II

Civil Appeal · Neutral citation not assigned (Civil Appeal Nos. 3555-3560 of 2012)Decided 3 Jun 2016
Civil Appeal Nos. 3555-3560 of 2012
Justice Dipak Misra · Justice Shiva Kirti Singh

Background

The appellant, a 100% Export Oriented Unit manufacturing synthetic yarn in Silvassa, had procured duty-free "partial oriented yarn" (POY) meant for export production, but excise authorities alleged the goods were instead diverted and sold in the domestic market without paying the applicable excise duty. The core legal dispute was how to calculate the excise duty payable on such domestic clearances by an EOU: specifically whether the duty should be computed under the proviso to Section 3(1) of the Central Excise Act (treating it as if the goods were imported) only for goods "allowed to be sold in India" under the Exim Policy, or under a different method for goods sold without such permission. A Tribunal Larger Bench had taken a view distinguishing an earlier Supreme Court precedent (SIV Industries Ltd.) based on a departmental circular.

Decision Breakdown

The Supreme Court held that the Tribunal's Larger Bench had erred in distinguishing the binding precedent in SIV Industries Ltd., which had already settled that the proviso to Section 3(1) (and the "allowed to be sold in India" language) applies specifically to EOU sales permitted into the Domestic Tariff Area under the Exim Policy. The Court found that a subsequent Tribunal decision (NCC Blue Water Products Ltd.) had in fact concurred with and reaffirmed SIV Industries, and that the 2004 departmental circular relied upon by the revenue did not undermine this position: the Tribunal below had misread the law in treating the circular as overriding binding Supreme Court precedent under Article 141 of the Constitution. The Court allowed the appeals, set aside the orders of the Tribunal and the adjudicating authority, and directed that excise duty be computed as per Section 3(1) read with the SIV Industries interpretation, with the competent authority to recompute the duty accordingly.

Lesson Learnt

A departmental circular cannot override a binding Supreme Court precedent, and tax/excise tribunals must follow settled Supreme Court interpretations of a statutory provision even if a later circular appears to suggest a different approach: Article 141 of the Constitution makes Supreme Court rulings binding on all courts and tribunals.

Official source (sci.gov.in)View Judgment (PDF)

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