By TIOL News Service

AHMEDABAD, FEB 19, 2014: NOTIFICATION No 23/2003 CE dated 31.03.2003 exempts goods manufactured in a EOU and cleared in DTA from payment of excise duty equivalent to the Additional duty of Customs leviable under sub-section (5) of Section 3 of the Customs Tariff Act, 1975 subject to the condition that the goods cleared into the Domestic Tariff Area are not exempt by the State Government from payment of sales tax or value added tax. In case of inter-unit transfer of goods, no Sales Tax is paid as it is only a stock transfer. However, department took a view that the EOU has to pay Additional Duty of customs and confirmed demand in this case. This issue has already been decided in favour of the EOUs in case of 2014-TIOL-04-CESTAT-MUM. But, what is interesting is without making any reference to this precedent decision of the Mumbai Bench, the Ahmedabad Bench on independent analysis held that 4% duty need not be paid in case of stock transfers.

The Tribunal held:

It is the fact that the inter unit clearance from EOU to DTA are not exempted from payment of sales tax by the state government by any notification and revenue unable to bring on record any notifications issued by the state government or otherwise to indicate that inter unit transfers from EOU to DTA are exempted. It is an admitted fact that whenever there is an inter unit transfer, it is not sales transactions and hence the sales tax/CST/VAT may not get attracted does not mean ipso facto, it is an exemption granted by the state government. In the absence of any notification granting exemption for specified products by the state government from levy of sales tax on the finished goods cleared from 100% EOU, it would be incorrect to hold that the goods were exempted from sales tax, more so when the appellant has discharged the sales tax on the same products which were cleared to independent buyers. Secondly, the lower authority seems to have been guided by the argument that inter unit clearance are not taxed by the state government and is to be construed as an exemption granted. This is totally a wrong perception of the law in as much as that exemption if any, under statute needs to be granted in accordance with law ie ., by issuance of notification by the concerned authorities. It is no body's case that the state government has no power to exempt sales tax/VAT on specific products. In our view, the only question which needs to be addressed is whether the goods cleared into DTA to appellants sister units are exempted or not exempted, which in our considered view due to foregoing reasons, has to be held in favour of assessee, in the absence of any evidence on record to show that the said products is cleared to DTA is exempt from payment of sales tax.

For the purpose of taking benefit of Notification 23/2003/CE, as amended, the one and only condition specified in respect of the goods being cleared into DTA, is if the said goods are exempted by the state government from payment of sales tax/VAT; in the present case there is no such notification or order issued by the state government exempting impugned goods from the payment of sales tax/VAT. It is to be held that plain reading of notification No. 23/2003-CE as amended is applicable "QUA-GOODS" and exemption is across the Board and is applicable to all such goods which are not exempted by the state government by issue of notification or an order from payment of sales tax/CST/VAT.

The terms of reference to the larger bench in case of Moser Baer (I) Ltd being totally different than the facts of the issue which is raised in these appeals; the reliance placed by the revenue on the ratio of the larger bench decision will not carry their case any further.

(See 2014-TIOL-258-CESTAT-AHM)