By TIOL News Service

CHENNAI, OCT 05, 2015: THE issue involved in these appeals is whether the assessees, engaged in the manufacture of Cement are eligible for exemption under Notification No 67/95CE in respect of clinker captively consumed for manufacture of Cement supplied to SEZ units and SEZ developers.

It is the case of revenue that as per the proviso to Notification, the benefit of the Notification is not admissible if the finished goods are exempted from payment of duty or are chargeable to Nil rate of duty. Since no duty is paid on Cement cleared to SEZs, the assessees are liable to pay duty on clinker captively consumed in respect of such cement. The dispute pertains to the period when the goods supplied to SEZs were exempted under Notification No No.58/2003-CE, dated 22.07.2003 as well as after the enactment of SEZ Act, 2005.

The appellant assessees contended inter alia that cements cleared to SEZ is not exempted goods. In this case cement is neither exempted by any notification nor is it chargeable to nil rate of duty. Therefore, cement is not an exempted goods but merely cleared without payment of duty under Rule 19 of the Central Excise Rules, by following the procedure set out for clearance of the goods for exports. They have followed all the procedures set out for exports like filing ARE-1 return and clearing the goods for export under bond. Clearance to SEZ is treated as exports and the duty is not required to be paid on the cement cleared to SEZ as it is treated on par with physical exports. As per Section 2 (m) and Section 51 of the SEZ Act, any supplies by DTA units to SEZ are treated as exports and they are entitled for the benefits like clearance without payment of duty, rebate, drawback and refunds. Cement is not exempted from payment of duty under Section 5A of the Central Excise Act. Therefore, they are not hit by the proviso to the Notification 67/95-CE.

On behalf of revenue, it was argued that the assessees are not eligible exemption under Notification No 67/95 CE and they are required to pay duty.

After hearing both sides, the Tribunal held:

+  The Tribunal in Surya Roshini case - 2013-TIOL-424-CESTAT-DEL, has categorically discussed the meaning of exempted goods defined in Rule 2(d) of Cenvat Credit Rules and held that the goods supplied to the SEZ units/developers are neither chargeable to nil rate of duty nor the goods are exempted from payment of duty by any Exemption Notification issued under Rule 5A. The Principal Bench's above decision is squarely applicable to the facts of the present case.

+  Revenue contended that Section 26(1)(c) of the SEZ Act clearly exempts the goods supplied by the DTA to SEZ units/developers and this should be considered while construing the proviso to Notification No.67/95-CE. This proposition of the Revenue is not acceptable and the word used in the proviso to Notification No.67/95-CE is dutiable and exempted final products in relation to Cenvat Credit Rules, 2001. In the present case, the final product Cement is an excisable commodity falling under Chapter 25 of CETA which are dutiable. There is no exemption of excise duty on cement. Therefore, in view of the Tribunals Principal Bench decision of Surya Roshini case, the final product cement cleared to SEZ units/developers is not exempted goods under any notification issued under Rule 5A of the Central Excise Act.

+  Cement cleared to SEZ unit/developers are not exempted goods but cleared without payment of duty by following the procedures and conditions stipulated in both SEZ and Rule 19 of CER Rules and the clinkers used captively for manufacture of cement cleared to SEZ is covered under Notification 67/95 from exemption of excise duty.

+  The issue has already been clarified by the Board in Circular No.1001/8/2015.Cx.8, dated 28.04.2015 with regard to granting of rebate of duty on goods cleared from DTA to SEZ. This circular, summarizes the contents of all previous Boards circulars and considered various provisions of SEZ Act and SEZ Rules and categorically clarified that supply of goods from DTA to SEZ units/developers constitutes exports.

+  In view of the Boards circular, dated 28.04.2015 and as per objectives of the SEZ Act, it is held that the goods supplied to SEZ unit/developer constitute as export and no duty can be levied on the clinker used in the manufacture of cement as the finished goods are supplied to SEZ units/developers without payment of duty by following procedures of Rule 19 of Central Excise Rules and Rule 30 of SEZ Rules.

+  Cenvat Credit Rules, 2001 has been amended by Cenvat Credit Rules, 2002 and further amended by Cenvat Credit Rules, 2004. Merely for the reason that the Notification No.67/95referring to Cenvat Credit Rules, 2001 and not Cenvat Credit Rules, 2004 cannot be a valid reason to deny the exemption under clause (vi) of the proviso to the notification. Even if only 2001 Rules is applied, still the benefit under Clause (vi) of the proviso to the Notification cannot be denied as Rule 6(5) (ii) of the 2001 Rules covered supplies to SEZs. Hence the obligations under Rule 6 of the 2001 Rules would also stand discharged.

+  The Revenue contended that the clause (i) of proviso to Notification No. 67/95 provides exception only for clearance to FTZ and not for SEZ. It is contended that the very purpose of the non-inclusion of SEZ in Notification No.67/95 is to make it apply only to FTZ and not to SEZ. This view cannot be accepted for the reasons that during the relevant period under dispute there were no FTZ in operation and if the Revenues view is to be taken, no clearance would be made to FTZ after the enactment of SEZ Act with effect from 10.02.2006. Once the SEZ Act came into effect from 10.02.2006 all the units functioning as FTZ were declared as SEZ units. Notification No.4/2003-CE, dated 30.03.2003 was issued to convert various FTZs into SEZs.

+  As per the Notes Explaining Clauses of the Finance Bill, 2007 clause 106, after enactment of SEZ Act FTZs have become redundant and hence it seeks to amend sub-section (1) of Section 3 of the Central Excise Act. By virtue of the above Act, the word FTZ was omitted and substituted with the word SEZ. Therefore, the Revenues plea that the goods supplied to SEZ is not covered under clause (i) of the Proviso to the notification is not acceptable.

Accordingly, the Tribunal allowed the appeals by the assessees and dismissed the appeals by the revenue.

(See 2015-TIOL-2110-CESTAT-MAD)