By TIOL News Service

MUMBAI, MAR 08, 2016: THE appellant, a 100% EOU, had cleared -spare parts' to their own unit in the Domestic Tariff Area.

Export Oriented Units clearing goods into the domestic market are required to discharge excise duty liability equivalent to the duties of customs payable by importers of like goods and the special additional duty at 4% to countervail VAT charged by the sate governments on domestic sales. The special additional duty, being levied to countervail the tax burden in a domestic sale transaction, is not leviable on imports that are sold as such and hence a system of refund of the special additional duty exists for availment upon production of proof of such trade.

While discharging duty liability during the period between May 2007 and February 2008, the appellant computed additional customs duty on Maximum Retail Price adjusted for abatement but did not pay Special Additional Duty at 4%.

The original authority based the demand on the finding that the goods had been cleared in bulk with further packaging for retail market done at the unit in the Domestic Tariff Area; that the provisions of section 4A of CEA, 1944 for MRP-based assessment would not apply because the mandate of packing and affixing MRP under the SWAM Act, 1976 comes into effect when the domestic unit sells these parts after further packaging; that VAT liability does not arise in such stock transfers and that they were not entitled to exemption notification no.23/2003-CE dated 31st March 2003 in the absence of prior permission of Development Commissioner for clearances into the Domestic Tariff Area.

The receiving unit of the appellant packs the spare parts and affixes labels on the individual packs. In the grounds of appeal, it is submitted that these goods are then sold to dealers and VAT is discharged in accordance with Entry 96 of Schedule C in the Maharashtra VAT Act, 2002. It is further contended that the sale to dealers is effected by the appellant itself and the goods are required to conform to Packaged Commodity Rules, 1977 issued under the SWAM Act, 1976. The grounds claim that the notification issued u/s 4A of CEA, 1944 includes automobile parts.

Before the CESTAT, the appellant submitted that on the issue of liability to pay Special Additional Duty, they rely on decisions of the Tribunal in Micro Inks - 2014-TIOL-258-CESTAT-AHM and M/s VVF Ltd - 2014-TIOL-04-CESTAT-MUM. Reliance is also placed on the decisions in L'Oreal India Pvt Ltd - 2014-TIOL-1170-CESTAT-MUM & Alembic Ltd - 2014-TIOL-1282-CESTAT-AHM in the matter of manufacture and invocation of extended period.

The AR justified the demand and in the matter of limitation cited the apex court decision in Dharampal Satyapal - 2005-TIOL-75-SC-CX-LB.

The Bench inter alia observed -

++ A specific exemption of an amount equal to the special additional duty is granted when clearances are effected by EOUs to the local market. Notification no. 23/2003-CE dated 31 st March 2003 permits such an exemption subject to the condition that goods are not exempt from state VAT levies.

++ Appellant has established that parts of tractors are not exempt under Maharashtra Value Added Tax Act, 2002; in terms of the said notification, taxability is the sole criterion for extending the benefit of exemption. There is no statutory requirement to furnish any evidence of discharge of VAT liability. The competent authority for implementation of VAT collection is the state government and it is not within the assigned responsibility of Central Excise authorities to ascertain compliance or to predicate the grant of exemption to such compliance.

++ The attempt in all three impugned orders to predicate the exemption on ascertainment of discharge of VAT liability is contrary to the exemption notification itself and also contrary to the constitutional scheme of taxation. That the goods are liable to VAT is sufficient to exempt it from the ambit of the countervailing tax entailed upon import of like goods. The demand for special additional duty is, therefore, in excess of jurisdiction and untenable.

++ The case of Revenue is that the maximum retail price adjusted for abatement should not have been the basis for self-assessment of additional duty which was liable to duty on the invoice price and the basic customs duty thereon.

++ Automobile parts are, without doubt, required to be assessed under section 4A for computation of Central Excise duty and, consequently, for computation of additional duty of customs payable by an Export Oriented Unit for clearance of parts of tractors to the local market.

++ It is not the packaging that determines the applicability of mandate of affixing the -retail sale price' but the product itself. Consequences of non-conforming packaging are not escapement from the mandate but the enforcement of penal detriment.

++ The reasoning in the impugned order that bulk packaging will render the tractor parts outside the pale of -retail selling price' is flawed as the primary responsibility under Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008 is to penalize non-compliance and to determine the -retail selling price' as per the Rules instead of opting for an opportunity to collect more duty through an inapplicable provision.

++ The produce of the appellant cannot be cleared in any manner other than in accordance with the prescriptions in the Packaged Commodity Rules, 2007. No evidence has been put forth that it has been cleared otherwise by the appellant. The assessment by the appellant is, therefore, not liable to be faulted.

++ The appellant is, thereby, eligible for the abatement. The computation and payment of duty by the appellant has been appropriate and in accordance with law. No action for recovery of any further amount lies.

The impugned orders were set aside and the appeals were allowed.

(See 2016-TIOL-555-CESTAT-MUM)