Whether benefit of notification deniable on ground that in case of stock transfer, condition that goods must not be exempt from Sales tax levy is not fulfilled?

PJ/CASE LAW/2015-16/2725

Case:-VVF LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, BELAPUR

Citation:- 2015 (315) E.L.T. 303 (Tri. - Mumbai)

Brief Facts:-The appellant is in appeal against Order-in-Original confirming demand of Rs. 17,84,45,537/- with interest and equivalent penalty, demand of Rs. 3,87,92,095/- with interest and equivalent penalty and demand of recovery of CENVAT credit of Rs. 4,29,58,148/- with interest and penalties of Rs. 50 lakhs and Rs. 2 lakhs under Rule 25/26(2)(ii) of the Central Excise Rules, 2002. The demands have been issued both for extended period and normal period of limitation.
The facts are that the appellants are a 100% EOU and manufacture “Fatty Acids”, “Fatty Alcohols” and “Soap Noodles”. Apart from export, they also cleared goods in the Domestic Tariff Area (DTA) to third parties as well as to their own units. The clearances into DTA are under concessional rates of duties provided in Notification 23/2003, dated 31-3-2003. The goods manufactured and cleared by an EOU into DTA attract levy of Central Excise duty under Section 3 of the Central Excise Act, 1944. Under proviso to Section 3 ibid, the amount of excise duty payable is equal to the aggregate of duties of Customs on like goods imported into India. Therefore, the goods cleared into DTA are leviable to basic customs duty, countervailing duty issued under Section 3(1) of the Customs Tariff Act, 1975 (CTA) and Special Additional Duty (SAD) under Section 3(5) of the Customs Tariff Act, 1975. Apart from these duties, Education Cess and Secondary and Higher Education Cess are also leviable. Notification 23/2003 provides the effective rate of duty in respect of goods cleared by EOU into DTA. The table under the Notification is reproduced below :-

Sr. No.	Chapter or heading No. or sub-heading No.	Description of Goods	Amount of duty	Conditions
1.	Any Chapter	All goods	Duty of excise leviable thereon as is equivalent to the additional duty of customs leviable on such goods under sub-section (5) of section 3 of the Customs Tariff Act, 1975 (51 of 1975) read with the proviso to sub-section (1) of Section 3,of the said Central Excise Act.	1
2.	Any Chapter	All goods	In excess of the amount equal to the aggregate of duties of Customs leviable on like goods, as if, - (a)duty of customs specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), read with any other notification in force was reduced by 75%; and (b) no additional duty of customs was leviable under subsection (5) of the Section 3 of the said Customs Tariff Act : Providedthat while calculating the aggregate of customs duties, additional duty of customs leviable under sub-section (5) of the Section 3 of the said Customs Tariff Act shall be included if the goods cleared into Domestic Tariff Area are exempt from payment of sales tax or value added tax.	2

ANNEXURE (for conditions to notification)

Sr. No.	Conditions
1.	If the goods being cleared into the Domestic Tariff Area are not exempt by the State Government from payment of sales tax or value added tax.

The appellants did not pay Special Additional Duty under Section 3(5) of the CTA claiming exemption as per Table above in respect of clearances of finished goods to their own units in DTA on stock transfer. Revenue was of the view that the appellant was not eligible for exemption as no sales tax was paid which was the condition as per Annexure to the Notification. The other issue raised by Revenue was that as per Rule 3(7)(b)(iii)/(iiia) of the Cenvat Credit Rules, 2004, the CENVAT credit in respect of Education Cess on excisable goods leviable under Section 91/93 of the Finance Act, 1994 and Secondary and Higher Education cess leviable under Section 136/138 of the Finance Act can be utilized only towards payment of education cess on excisable goods whereas the appellant had utilized the CENVAT credit towards payment of duty leviable on aggregate of Customs duties under proviso to Section 3 of the Central Excise Act, 1944. That is, the Revenue viewed that Customs cess was paid from the Central Excise Cenvat Credit Cess. Accordingly, the adjudicating authority confirmed the demands on both the grounds mentioned above and imposed penalties.

Appellants Contention-The learned Counsel argued that they fulfil the conditions of Notification 23/2003 as the goods are otherwise not exempt from sales tax by the State Government as such and for this reason they availed exemption from SAD in the case of stock transfer to their own units. For this very reason, in respect of clearances made to other DTA units while availing exemption from SAD they had paid sales tax. The appellant also dispute the amount of duty saying that department had included the clearances made to other units also. On the issue of cess, the Advocate’s contention is that the duty paid under proviso [to Section] 3 of the Central Excise Act, 1944 is Central Excise duty and not Customs duty. It was also argued that there are no grounds alleging suppression as it is only a case of interpretation of law. The appellant relied on Authority for Advance Ruling in the case of GE India Industrial P. Ltd.v. CC- 2013-TIOL-01-AAA Cus.= 2014 (304)E.L.T.452 (AAR).

Respondents Contention-On the other hand, the learned A.R. vehemently stated that exemption under Notification 23/2003 is not available since sales tax is not leviable on inter-unit transfer and therefore, it cannot be said that the goods are in exemption by the State Govt. from payment of sales tax when the sales tax itself is not leviable. He also relied on the case of Moser Baer India Ltd.v. CCE, Noida - 2009 (240)E.L.T.25(Tri.-Larger Bench of this Tribunal).

Reasoning Of Judgement-The tribunal have carefully considered the submissions made by both the sides.
The core issue is whether the benefit of Notification 23/2003 is allowable or not. To be eligible for exemption from payment of SAD the condition in Notification 23/2003 to be satisfied is “…….the goods being cleared into DTA are not exempt by the State Govt. from payment of sales tax or Value Added Tax (VAT).” A plain interpretation of this phrase has to be made. In this case it is not disputed that such goods when sold in DTA had not been exempted by the State Govt. by any Notification. Tribunal are not required to go into the analysis as to whether the goods are leviable to sale tax as contended by the department that there is no sales tax on stock transfer. The fact remains that the goods sold in DTA are not exempted from sale tax. Therefore, the benefit of Notification is clearly available to the appellants. The reliance on Moser Baer (supra) case is misplaced because in that case the sales tax was not leviable in the first place in view of exemption to such EOU units from payment of sales tax. On the other hand, the Authority for Advance Ruling (supra) case supports the appellant’s case. In that case the matter was similar although it related to stock transfer from SEZ unit to DTA transfer; it was held that the exemption would be available. On the issue of wrong availment of CENVAT credit they find that the law has not been read correctly by the adjudicating authority. The duty paid by the appellant is Central Excise duty under Section 3 of the Central Excise Act and not the Customs duties. Section 3 merely provides that the Central Excise duty payable would be aggregate of Customs duty. Therefore, the appellants have correctly utilized the CENVAT credit in respect of cess of excisable goods towards payment of duty/cess leviable under Section 3 ibid. Revenue filed a miscellaneous application to draw our attention to Board Circular No. 44/2013-Cus., dated 30-12-2013 in respect of SAD payable on goods cleared from SEZ to DTA under Notification 45/2005, dated 16-5-2005. They have discussed this matter above and given our considered view that benefit of Notification 23/2003 is admissible. Therefore, the miscellaneous application is disposed of in the above terms. They note that in the appellant’s own case, an identical issue for different time period, has been decided in their favour by the Coordinate Bench vide Order Nos. A/882-883/2013/EB/C-II, dated 18-10-2013 [2014 (312)E.L.T.116 (Tri. - Mumbai)].In view of the above, they set aside the Order-in-Original and allow the appeal with consequential relief, if any.

Decision:- Appeal allowed.

Comment:- The crux of the case is that to be eligible for availing the benefit of notification no.23/2003 the only condition to be satisfied is that the goods cleared into DTA are not exempted from payment of sales tax or VAT. If the goods are not otherwise exempted from payment of sales tax/VAT and the reason for non payment of sales tax/VAT is stock transfer, then the benefit of the notification cannot be denied by contending that the condition of the notification has not been satisfied. Furthermore, the assessee can utilize the Cenvat Credit of Central Excise Cess to pay Customs cess because duty paid is central excise duty only and not the customs duties.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2725

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