Full Judgment Text
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PETITIONER:
M/S. SIV INDUSTRIES LTD.
Vs.
RESPONDENT:
COMMISSIONER OF CENTRAL EXCISE & CUSTOMS
DATE OF JUDGMENT: 10/03/2000
BENCH:
D.P.Wadhwa, Ruma Pal
JUDGMENT:
D.P. WADHWA, J.
This appeal is directed against the order dated
November 5, 1997 of the Customs, Excise and Gold (Control)
Appellate Tribunal (for short the ’Tribunal’) allowing the
appeal of the respondent and directing that duty of Central
Excise was payable under Section 3(1) of the Central Excise
and Salt Act, 1944 (for short the ’Act’) and not under
proviso to Section 3(1) of the Act as claimed by the
appellant. Section 3(1) of the Act with proviso, in
relevant part, is as under: - "Section 3. Duties specified
in the Schedule to the Central Excise Tariff Act, 1985 to be
levied (1) There shall be levied and collected in such
manner as may be prescribed duties of excise on all
excisable goods other than salt which are produced or
manufactured in India and a duty on salt manufactured in, or
imported by land into, any part of India as, and at the
rates, set forth in the Schedule to the Central Excise
Tariff Act, 1985:
Provided that the duties of excise which shall be
levied and collected on any excisable goods which are
produced or manufactured, -
(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 of customs which would be leviable under section 12
of the Customs Act, 1962 (52 of 1962), on like goods
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 determined in accordance with the
provisions of Customs Act, 1962 (52 of 1962) and the Customs
Tariff Act, 1975 (51 of 1975).
Explanation 1. Where in respect of any such like
goods, any duty of customs leviable under the said section
12 is leviable at different rates, then, such duty shall,
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for the purposes of this proviso, be deemed to be leviable
under the said section 12 at the highest of those rates.
Explanation 2 In this proviso, -
(i) "free trade zone" means the Kandla Free Trade Zone
and the Santa Cruz Electronics Export Processing Zone and
includes any other free trade zone which the Central
Government may, by notification in this Official Gazette,
specify in this behalf;
(ii) "hundred per cent export-oriented undertaking"
means an undertaking which has been approved as a hundred
per cent export- oriented undertaking by the Board appointed
in this behalf by the Central Government in exercise of the
powers conferred by section 14 of the Industries
(Development and Regulation) Act, 1951 (65 of 1951), and the
rules made under that Act."
Under the relevant import policy the 100% Export
Oriented Unit Scheme (EOU) envisages an industrial unit
offering for export its entire production, excluding rejects
or items otherwise specifically permitted to be supplied to
the Domestic Tariff Area. Industrial units approved by the
Board of Approvals (BOA) set up for this purpose alone are
eligible for import of capital goods, raw materials,
components and spares, etc. required by them for export
production under the Scheme. Based on the approval granted
by the Board of Approvals a 100% EOU is eligible to import,
without payment of customs duty, capital goods, office
equipment, proto-types and technical samples, generating
sets, raw materials, components consumables, intermediates,
packing materials, material handling equipment like fork
lifts, overhead cranes and spares under Open General Licence
subject to certain conditions. Applications for approval as
100% Export Oriented Unit are to be submitted to the
Secretariat for Industrial Approvals, Ministry of Industry.
Such EOU under no circumstances can be allowed to dispose of
the export product in the domestic market unless
specifically allowed by the Government. Appellant was
granted permission to set up a 100% Export Oriented Unit
(EOU) for the manufacture of viscose staple fibre at its
factory at Sirumugal in Coimbatore District in the State of
Tamil Nadu. The Letter of Intent dated December 19, 1991
was issued to the appellant for the purpose by the
Secretariat for Industrial Approvals (SIA), Ministry of
Industry, Government of India. On September 8, 1993
appellant made an application to the Secretary, Ministry of
Commerce, Government of India and sought debonding of its
unit from 100% EOU, i.e., withdrawal from 100% EOU Scheme.
By letter dated October 18, 1993 of the Ministry of Commerce
it was agreed in principle to allow the appellant to
withdraw from the 100% EOU Scheme subject to the conditions
on which withdrawal was permitted and as mentioned in
annexure to the letter. Once the debonding of the unit is
permitted, finished goods earlier manufactured in the 100%
EOU could be cleared for Domestic Tariff Area (DTA) on levy
of duty of Central Excise. The dispute is at what rate this
duty is to be levied. As noted above, it is the contention
of the appellant that excise duty is payable on the finished
goods under main Section 3(1) of the Act together with
customs duty on the imported raw material used in the
manufacture of said finished goods lying in the stock. The
Revenue on the other hand contends that excise duty under
proviso to Section 3(1) of the Act is payable on the
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finished goods and with no customs duty being levied on the
raw materials gone into the manufacture of finished goods.
It is the expression "allowed to be sold in India" appearing
in proviso to Section 3(1) of the Act which in fact is the
bone of contention between the parties. Appellant contends
that for the application of proviso to Section 3(1) two
conditions have to be cumulatively and simultaneously
satisfied, viz., (1) goods should have been produced or
manufactured by an existing 100% EOU and (2) these goods
should have been allowed to be sold in India. It is not
necessary for us to state the grounds on which appellant
sought debonding of its 100% EOU. By letter No.
12/335/91-EP dated October, 1993 from the Government of
India in the Ministry of Commerce, appellant was told that
its request for debonding of the unit was considered by the
Board of Approvals (BOA) for 100% EOUs in its meeting and
had been recommended for approval subject to normal
conditions of debonding. It was stated that formal letter
would be issued by SIA in due course. It was also pointed
out that the letter was being issued to enable the appellant
to work out various modalities with the Customs Authorities
and start for switching over from 100% EOU to DTA and to
enable it to obtain release/dispose of the stocks/
inventories on payment of applicable duties. By letter No.
E.O.335(91)-IL/MRTP dated November 3, 1993 from the
Government of India in the Ministry of Industry, Department
of Industrial Development, Secretariat for Industrial
Approvals (SIA) to the appellant it was agreed in principle
to allow the appellant to withdraw from 100% EOU Scheme
subject to conditions mentioned in the annexure to the
letter. It will be appropriate to set out this letter as
well as the annexure thereto, containing the conditions
governing withdrawal from 100% EOU Scheme: -
"No.E.O.335(91)-IL/MRTP Government of India Ministry
of Industry Department of Industrial Development Secretariat
for Industrial Approvals EOU SECTION
New Delhi, the 3rd November, 1993
M/s. South India Viscose Limited., P.B. No.1844,
1977-A, Trichy Road, Singanallur, Coimbatore 641 005.
Subject:- Letter of permission No. PER:163 (91)
/E.O.335(91)-IL(MRTP), dated 18.12.1991 issued for the
manufacture of viscose staple fibre under 100% Export
Oriented Scheme Debonding of the unit.
(E.O.335/91-IL/(MRTP)-
Gentlemen,
I am directed to refer to your letter addressed to
Ministry of Commerce (EP Section) on the above subject and
to say that in the circumstances explained therein,
Government of India agree, in principle, to allow you to
withdraw from the 100% Export Oriented Scheme, for which
letter of permission No. PER:163(91)/E.O.335(91) IL(MRTP),
dated 18.12.1991 was granted to you for the manufacture of
viscose staple fibre for an annual capacity of 18,000
tonnes. The withdrawal from 100% EOU Scheme will be subject
to the conditions mentioned in the Annexure (attached).
2. After you have complied with the conditions
mentioned in the Annexure, you may approach your
Administrative Ministry for issue of final debonding letter.
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3. As regards surrender of Letter of Permission No.
PER:163(91)/E.O.235(91)-IL/MRTP, dated 18.12.1991, a
separate communication will follow from the Administrative
Ministry (viz. Ministry of Textiles A&MMT Section), Udyog
Bhawan, New Delhi.
4. All further correspondence in the matter, if any,
may please be addressed to the Administrative Ministry viz.
Ministry of Textiles A&MMT Section, Udyog Bhawan, New
Delhi.
5. Please acknowledge receipt.
Yours faithfully,
Sd/- (Baldev Raj) Under Secretary to the Government of
India."
"Annexure
STANDARD CONDITIONS GOVERNING WITHDRAWAL FROM 100% EOU
SCHEME
1) The undertaking shall pay all customs and excise
duties on the imported and Indigenous capital goods, raw
materials, components, consumables and spares in stock as
well as on the finished goods in stock, together with all
penalties and other charges as per Customs Act and Rules,
before the issue of final debonding letter.
2) The undertaking shall also deposit a penalty of 10%
of the cif value of imported capital goods, towards
non-fulfillment of export obligation, with the import
licensing authority with whom it had executed a legal
undertaking in respect of the 100% Export Oriented Unit.
This penalty shall be paid before the issue of final
debonding letter.
3) In case the undertaking has availed of the facility
of external commercial borrowings, the same shall be
disinvested before the issue of final debonding letter.
4) The undertaking shall obtain a fresh approval under
the current Industrial Licensing Policy to undertake the
proposal activity under domestic tariff area scheme.
5) The undertaking shall undertake an export
obligation of 25% of the annual production for a period of 5
years or an amount equal to five times of the Cif value of
imports whichever is higher. For this purpose it shall
execute a Legal undertaking with the Import Licensing
Authority concerned.
6) The undertaking shall also make such payment(s) as
may be necessary for all other major benefits that it might
have availed of under 100% Export Oriented Scheme."
When the appellant received letter dated October 18,
1993 from the Ministry of Commerce it approached the
Assistant Collector of Central Excise for valuing the goods
and the duties of customs and central excise payable.
Appellant was informed by the Assistant Collector of Central
Excise by his letter No. C.No.VIII/48/3/92-Cus. dated
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November 8, 1993 that value of the goods and duties have
been worked out and it was asked to pay the same. Appellant
was also informed that the assessment had been done on a
provisional basis. The dispute in the present case concerns
the finished goods which had been manufactured prior to the
date of debonding of 100% EOU of the appellant. There is no
dispute that whole of the duties of customs and central
excise as demanded by the Assistant Collector of Central
Excise in his letter No. C.No.VIII/48/3/92-Cus dated
November 15, 1993, had been paid and which amounted to
Rs.6,62,70,540.76. It is also not disputed that all the
conditions stipulated in the letter dated November 3, 1993
of the Government of India in the Ministry of Industry,
Secretariat for Industrial Approvals (SIA) have also been
complied with by the appellant. On February 2, 1994 a
formal letter was issued by the Ministry of Textile in the
Government of India debonding the appellant’s unit and
permitting it to operate as a DTA unit. This letter took
note of the fact that on the basis of the provisional
assessment by the Assistant Collector of Central Excise
appellant had deposited the amount of duties of customs and
central excise and the appellant had also been allowed to
clear the finished stock lying with it in its stock as on
November 16, 1993 as well as the production from December 8,
1993 onwards on provisional basis. After the appellant had
been allowed in principle to withdraw from the 100% EOU
Scheme by letter dated November 3, 1993 of the Ministry of
Industry it had recognised its manufacturing activities as a
DTA unit from December 6, 1993. On January 21, 1994
Assistant Collector of Central Excise issued a show cause
notice to the appellant now seeking to assess the finished
goods lying in the stock on the date of debonding and
demanding excise duty under proviso to Section 3(1) of the
Act. It would appear that the Assistant Collector of
Central Excise had earlier demanded duty under main Section
3(1) of the Act. A corrigendum dated February 14, 1994 was
issued by the Assistant Collector of Central Excise to the
show cause notice seeking now to demand duty in respect of
clearance made from November 16, 1993 to February 1, 1994
under proviso to Section 3(1) of the Act after deducting the
duties already paid by the appellant. Yet another
corrigendum was issued to the show cause notice by the
Assistant Collector of Central Excise on February 21, 1994.
By his order dated March 31, 1994 Assistant Collector of
Central Excise passed his order in original in which he
agreed with the appellant to the extent that the date of
debonding should be taken as November 15, 1993 when the
appellant paid the applicable duties and not February 2,
1994 when formal letter of debonding was issued by the
Ministry of Textiles. However, in respect of applicability
of proviso to Section 3(1) of the Act Assistant Collector of
Central Excise decided the issue against the appellant and
accordingly confirmed the duty demanded. Aggrieved
appellant filed an appeal before the Collector of Central
Excise (Appeals) under Section 35 of the Act. Collector of
Central Excise (Appeals) agreed with the appellant and
decided the issue in its favour thus allowing the appeal.
Now it was the Revenue which felt aggrieved. Collector of
Central Excise filed appeal before the Appellate Tribunal
against the order of the Collector of Central Excise
(Appeals) under Section 35B of the Act. By order dated
November 5, 1997 which is impugned, Tribunal allowed the
appeal of the Revenue holding that it was the proviso to
Section 3(1) of the Act, which was applicable. We may note
that corrigendum to show cause notice which was issued on
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February 14, 1994 was later on dropped by the Assistant
Collector of Central Excise himself. Now it is the
appellant which has come before this Court. To appreciate
the rival contentions we may consider the policy of the
Central Government under which EOU Scheme came into
operation. Under Notification No. 13/81-Cus. dated
February 9, 1981 as amended from time to time (as on October
15, 1992) and issued under sub-section (1) of Section 25 of
the Customs Act, 1962, Central Government exempted specified
goods when imported into India for the purpose of
manufacture of articles for export out of India or for being
used in connection with the production or packaging of goods
for export out of India by 100% EOU approved by the Board of
Approvals (BOA) from whole of the duty of customs leviable
thereon and the additional duty, if any, subject to the
conditions contained in the notification. One of the
conditions was "on the clearance of five per cent of
articles so manufactured or such other percentage as may be
fixed by the said Board, which are allowed to be sold in
India, being in the nature of rejects, the importer shall
pay a sum equivalent to the duty of excise payable on such
articles under Section 3(1) of the Act, which have not been
exported". Benefit of the notification is to be availed of
by the importer, if he exports out of India 100% or such
other percentage, as may be fixed by the said Board, of
articles manufactured wholly or partly from the goods for
the period stipulated by the Board or such extended period
as may be specified by the said Board. On the expiry of
this period the importer is required to pay customs duty on
the imported capital goods, material handling equipment,
office equipment, captive power plants, etc. on depreciated
value but at the rates prevalent at the time of import and
also to pay customs duty on enhanced imported raw materials
or components on the value at the time of import and at the
rates in force at the time of clearance. Proviso to Section
3(1) of the Act thereafter was inserted in Section 3 of the
Act by Act 14 of 1982. A circular dated February 17, 1983
was issued by the Central Government clarifying the
introduction of proviso. It applied to units in Kandla Free
Trade Zone and Santa Cruz Electronics Export Processing Zone
allowing them to sell their goods not exceeding 25% of the
production in DTA on payment of excise duty equal to the
duties of customs leviable on like goods imported from
abroad. Clearance to the DTA was to be allowed only after
necessary permission had been obtained by the unit from the
Development Commissioner/Administrator in-charge of the Free
Trade Zone (FTZ). The circular pointed out that in order to
levy excise duty equal to the duties of customs leviable on
the like goods imported from abroad, a proviso had already
been inserted in Section 3(1) of the Act. In 1984 there was
further amendment to proviso to Section 3(1) of the Act by
Act 21 of 1984. The effect of the amendment was that the
facility of sale in DTA was now extended to 100% EOUs as
well. On May 29, 1984 Central Government issued a circular
explaining further amendment to proviso to Section 3(1) of
the Act. It said that the Central Government had decided to
allow 100% EOU which had been approved by the Board of
Approvals (BOA) to sell their goods not exceeding 25% of
their exportable production in the Domestic Tariff Area
(DTA) on payment of appropriate duty of excise. In addition
these undertakings could remove 5% of such other percentage
of the goods, as may be fixed by the BOA provided such goods
are in the nature of rejects. It was pointed out that
amendment has been carried out in proviso to Section 3(1)
and that such of the goods would be liable to duty of excise
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equal to the aggregate of the duties of customs of like
goods imported from abroad. Circular provided that
application for permission to sell 25% of exportable
production should be certified by the Central Excise Officer
indicating the quantity of goods which had actually been
produced or manufactured as on that date. On June 18, 1992
a Public Notice No. 16-ITC(PN)/92-97 was issued, being one
of the import and export public notices, laying down
guidelines for sale of goods in DTA by EOUs and units in the
Export Processing Zone (EPZs). The Public Notice referred
to the export and import policies and the Handbook of
Procedures (1992- 97) providing for sale of goods in the DTA
by EOUs and units in EPZs up to 25% and then laid down the
guidelines which would govern sales in DTA. This Public
Notice could not be applicable to EOU when it is debonded in
view of the norms laid in Public Notice which could apply
only to the unit not withdrawing from EOU Scheme.
Contention of the Revenue is that permission to withdraw
from scheme is itself a permission to sell in India, i.e.,
when unit is permitted to debond, it would be deemed to have
been permitted to sell the goods in India. But then
permission to sell in India has to be in terms or in
accordance with the provisions of the export import policy.
Permission to sell in India by 100% EOU consists of all
those factors like value addition, fulfillment of export
obligation, sale of a general currency licence holder, item
being not mentioned in the negative list and then there
being a limit of 25%, etc. When permission to debond is
given, none of these criteria or aspects are applied by
Board of Approvals (BOA) to the closing stock of finished
goods. Board of Approvals is a statutory authority, which
permits debonding. It is created under the Industrial
(Development and Regulation) Act. On the other hand
permission to sell the goods in India under and in
accordance with the import policy has to be given by the
Development Commissioner in the Ministry of Commerce. Board
of Approvals and the Development Commissioner are two
different authorities constituted for two different
purposes. Permission to debond is a statutory function
exercised by one statutory authority. On the other hand
permission to sell in India is to be exercised by different
statutory authority. If reference is made to para 102 of
the relevant import export policy permission of the
Development Commissioner is required for selling the goods
in India up to limit of 25% by 100% EOU. Para 117 of the
policy deals with debonding of 100% EOU. Thus it is
apparent that debonding and permission to sell in India are
two different things having no connection with each other.
It also becomes apparent that in view of the EOU Scheme as
modified from time to time and corresponding amendments to
Section 3 of the Act the expression "allowed to be sold in
India" in proviso to Section 3(1) of the Act is applicable
only to sales made up to 25% of production by 100% EOU in
DTA and with permission of the Development Commissioner. No
permission is required to sell goods manufactured by 100%
EOU lying with it at the time approval is granted to debond.
Revenue has proceeded on the assumption that by debonding
permission has been granted by the BOA for selling the
closing stock of finished goods in India. This cannot be
so. BOA does not concern itself with the manner of the
disposal of the closing stock of the finished goods. After
debonding it is open to the erstwhile 100% EOU, which is now
like any other manufacturing unit in India to sell the goods
in India or export it by following the normal procedure. By
its application dated September 8, 1993 appellant had only
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asked the Central Government for permission to debond the
unit. Pending formal debonding clearance, appellant
requested the Central Government that it might allow it to
sell the goods in India. This request of the appellant was
never acceded to by the concerned authority and letter of
debonding was issued. This application of the appellant,
therefore, could not be treated as an application for
permission to sell in India as contended by the Revenue and
the debonding letter of the BOA cannot be construed as
permission to sell in India. Argument of the Revenue that
debonding assumes allowing all closing stock of the goods on
the date of debonding to be sold in India would be
stretching the matter a little too far. Conditions for sale
of 25% of the finished products by EOU and sale of finished
stock by a debonded 100% EOU on the date of debonding are
different. It was contended by Mr. Lakshmikumaran, learned
counsel for the appellant, that under Rule 9A(1)(ii) of the
Central Excise Rules framed under the Act duty is chargeable
at the rate on the date of removal of the goods and not from
the date of their manufacture (See Wallace Flour Mills Co.
Ltd. vs. Collector of Central Excise, Bombay, Division III
[(1989) 4 SCC 592]). He said it is not material when the
goods were manufactured and that it is the date of removal
for sale in India that matters. He, therefore, submitted
that central excise duty could be charged at the rate
prevalent at the time when the goods were sold by the
appellant in India on the date when 100% EOU was debonded
which would be the date for removal for sale in India. We
may also refer to the counter affidavit filed by the Revenue
in this appeal. It is stated that in December, 1991
appellant started 100% EOU and was following all the rules
and regulations set out for running an EOU. Owing to poor
running of the unit appellant applied for debonding of the
unit, which was accepted in October, 1993. The Department
issued show cause notices demanding duty on the stock of
finished goods lying on the date of debonding, which is
equal to customs duty leviable under Section 12 of the
Customs Act, 1962 as per proviso to Section 3(1) of the Act
which provides for charging duty on 25% of goods sold by an
EOU in DTA. It will thus be seen that it is the stand of
the Revenue itself that proviso to Section 3(1) of the Act
is applicable to 25% of goods sold by an EOU in DTA.
Concept of bonding or debonding is well understood both
under the Act and the Customs Act, 1962. The entire
operations of an EOU are to be in customs bonded factory,
unless otherwise specifically exempted from physical
bonding. The approved unit is required to execute a
bond/legal undertaking with the Development Commissioner
concerned in the form prescribed. Under the conditions laid
for EOU, bonding period for units under the EOU Scheme is
ten years. This period may be reduced to five years by the
Board of Approvals in case of products liable to rapid
technological change. On completion of the bonding period
it shall be open to the unit to continue under the Scheme or
opt out of the Scheme. Such debonding is, however, subject
to industrial policy in force at the time the option is
exercised. On the satisfaction of the Board of Approvals,
EOU may be debonded on its inability to achieve export
obligations, value addition or other requirements. Such
debonding is subject to such penalty as may be imposed and
levy of the following duties: - (a) Customs duty on capital
goods at depreciated value but at rates prevalent on the
dates of import; (b) Customs duty on unused raw materials
and components on the value on the dates of import and at
rates in force on the dates of clearance. Unless there is a
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specific prohibition EOU is permitted sale in the DTA all
rejects up to 5% production or such percentage as may be
fixed by the Board of Approvals subject to payment of
applicable duties and other conditions. DTA sale
entitlement is 25%. It is to be determined in relation to
the ex-factory value of the total production, excluding
permissible levels of rejects. DTA sale entitlement may be
up to 25% of the total production provided the value of
indigenous constituents of the final products excluding
water, power, services and spares for capital goods is in
excess of 30% of the cost of the product. Such entitlement
may be up to 15% only if the value of indigenous
constituents is less than 30% of the total cost. Chapter
V-A of the Central Excise Rules contains provisions for
removal from a free trade Zone or from a 100% EOU of
excisable goods for home consumption. This Chapter was made
applicable to units under the EOU Scheme by a notification
No. 130/84-C.E. dated May 26, 1984. This Chapter contains
Rules 100A to 100H. Rule 100A provides that the provisions
of this Chapter shall apply to a person permitted under any
law for the time being in force to produce or manufacture
excisable goods in a 100% Export Oriented Undertaking and
who has been allowed by the proper officer to remove such
excisable goods for being sold in India on payment of duty
of excise leviable thereon. It will be thus seen that this
Chapter V-A would not be applicable where EOU is outside the
EOU Scheme after the unit is debonded. Under Rule 100H Rule
57A and other Rules mentioned therein shall not apply to
excisable goods produced or manufactured by 100% Export
Oriented Undertaking. Rule 57A relates to allowing credit
of any duty of excise or the additional duty under Section 3
of the Customs Tariff Act, 1975 as may be specified by the
Central Government in the notification, paid on the goods
used in or in relation to the manufacture of the final
products and for utilising the credit so allowed towards
payment of duty of excise leviable on the final products.
Considering the whole aspect of the matter, we are of the
opinion that the Tribunal was not right in holding that duty
is to be leviable in terms of the proviso to Section 3(1) of
the Central Excise Act, 1944. We, therefore, set aside the
impugned judgment of the Tribunal and restore that of the
Collector of Central Excise dated October 11, 1994. The
appeal is accordingly allowed. There shall be no order as
to costs.