Inputs supplied to SEZ Units without payment of duty - No provision under CENVAT Rules to export inputs without payment of duty after taking credit - Demand of duty confirmed: CESTAT
By TIOL News Service
CHENNAI, NOV 11, 2013: RESPONDENTS are manufacturers of excisable goods namely, brake linings, clutch facings and disc braking pads. They take benefit of CENVAT credit on inputs used in the manufacture of these excisable products. They removed certain inputs on which CENVAT credit was taken to another unit of theirs situated in Mahindra Special Economic Zone without reversing the credit taken at the time of receipt of the inputs in the factory. Revenue was of the view that the respondents had contravened provisions of Rule 3 (5) of CENVAT Credit Rules, 2004 and therefore they were asked to pay an amount equal to the credit availed at the time of receipt of the inputs in the factory along with interest and penalty. The Commissioner (Appeals) allowed the appeal of the assessee and the revenue is now before the Tribunal.
Revenue contended that the meaning of the word "export" is not defined in Central Excise Act or Rules. It is defined in Customs Act, 1962. This meaning has been applied for the purpose of implementing Central Excise Act and Rules all along. There is a separate definition for this word under SEZ Act, 2005. As per this definition, supply of goods from Domestic Tariff Area to units in SEZ is also to be treated as exports. This is a deeming fiction which can apply only to the provisions in SEZ Act. Whether this deeming fiction will have effect in the context of goods supplied to SEZ units was examined by the Gujarat High Court in the case of Essar Steel Limited Vs. UOI - (2009-TIOL-674-HC-AHM-CUS). In this case, the issue was whether export duty needs to be paid on iron ore supplied from DTA unit to a unit in SEZ since such duty was payable on iron ore exported out of India. The High Court held that the deeming fiction in SEZ Act cannot be applied for the purpose of Customs Act and held that export duty is not payable unless there is export out of India that is to say the definition in Customs Act, 1962, was adopted. Therefore, as per Rule 3 (5) of CCR, the respondents were bound to reverse the credit taken.
The respondent assessee submitted that as per the provisions of the SEZ Act, supply of goods to SEZ units would amount to export and submitted that the whole purpose of SEZ Act was to make available raw materials without payment of duty to developer and units in SEZ. Revenue was frustrating this objective while demanding export duty when goods were supplied from DTA to units in SEZ. Similarly, they are trying to frustrate the objective of SEZ Act by denying a benefit of supply of materials without duty incidence to units in SEZ.
After hearing both sides, the Tribunal held:
The Gujarat High Court in the case of Essar Steel, even while deciding that for the purpose of imposing export duty, supplies to SEZ units cannot be treated as export, in para 41.2.9 has affirmed that benefit of refund, drawback, rebate etc on goods supplied to units in SEZ cannot be denied. So, I am in agreement with the line of argument of the respondent that supplies to units in SEZ units without payment of excise duty are in conformity with the policies of the government announced from time to time and also authorized by the provisions of SEZ Act. The decision in the case of Essar Steel does not alter the position though it negated levy of export duty.
Now, the facts of this case is that a unit in DTA was obtaining duty paid goods, taking Cenvat credit of duty paid on such goods and was removing it without reversal of credit to another unit in SEZ, thus stripping the Cenvat credit without following any procedure for export of goods. The question is whether such an operation is authorized notwithstanding Rule 3 (5) of CCR. For the purpose of accounting the goods on which CENVAT credit is taken, CCR has to be considered as a complete code in itself and since the said rules do not envisage export of inputs after taking credit, I am of the view that Rule 3 (5) has to be necessarily complied with. Such an approach only is consistent with the decision of the Larger Bench of Tribunal in Lakshmi Automatic Loom Works (Ltd) - (2008-TIOL-1905-CESTAT-MAD-LB). In the said decision it was held that inputs cannot be removed from one EOU to another without payment of duty considering it as "deemed export".
Based on the above reasoning, the Tribunal allowed the appeal filed by Revenue. But granted relief from penalty imposed.
(See 2013-TIOL-1676-CESTAT-MAD)
