SACD refund is admissible, even if appropriate Sales Tax/VAT was less than SACD or Nil

CA K. Jitendra Babu

Case Citation- M/S Gazal Overseas Vs Commissioner of Customs (Cestat Delhi), Customs Appeal Nos. 567 Of 2009, Date Of Decision: 2.9.2015

1. Customs Notification 102/97 Dt.14.09.2007 permitted importers to claim refund of Special Additional Customs Duty (SACD) paid on the imported goods, provided such imported goods are sold in the domestic market on payment of VAT/Sales Tax.

2. In case of some of the imported materials, rate of VAT applicable on sale in domestic market as per VAT Act of the concerned
State is lower than the SACD rate. Further, in some of the cases, the rate of VAT applicable on some of the imported material is Nil.

3. Customs department has been rejecting the refund claims of the importers in case the rate of VAT is either Nil or less than SACD rate on the ground that refund is admissible only in case the rate of VAT is equal to or more than SACD rate of 4%.

4. SACD was imposed with an intention to create level playing field between imported goods and indigenous goods by levying duty on imported goods equivalent to Sales Tax/VAT. SACD is refundable to the importer in case the goods re-sold in the domestic market. The objective of refunding the SACD is avoidance of double taxation, since the importer is incurring VAT/CST again on sale of imported goods in domestic market. If the VAT/CST is not leviable or leviable at a rate lower than the SACD rate, then also importer is eligible for refund of SACD paid on import of goods, since the objective of levy of SACD is to create level playing field between imported and indigenous goods. Since indigenous goods are not liable for VAT/CST or liable for VAT/CST at a rate lesser than SACD, the objective of level playing field gets satisfied only on refunding SACD to the importer, since indigenous seller is also not remitting VAT/CST or remitting VAT/CST at a lower rate on sale of goods in domestic market.

5. The issue has been already clarified by the CBEC vide its Circular No.06/2008 Dt.28.04.2008 wherein at para 5.3, it was
clarified as under:

“5.3. The exemption contained in the said notification envisages that the importer shall file a refund claim for 4% CVD (“said additional duty of Customs”) paid on imported goods and shall pay on sale of the said goods “appropriate Sales Tax or VAT as the case may be”. Hence, it is clear that there is no stipulation in the notification that the exemption is available only if the rate of ST/VAT is equal to or higher than the rate of additional duty of Customs; nor is there a condition that if the rate of ST/VAT happen to be lower than 4%, the refund would be restricted to the lower amount. As such, it is clarified that it will not be appropriate to reduce the refund amount in such a situation and the entire 4% CVD, if otherwise found eligible, shall be refunded”.

6. In spite of Board circular, the dispute has reached the doors of CESTAT. The controversy has been settled by the Hon ‘ble CESTAT in its judgements in the case of M/s Gazal Overseas Vs. Commissioner of Customs, New Delhi [2015-TIOL-2454-CESTAT-DEL]. Copy of the judgement is attached herewith for ready reference. The CESTAT held that “It is evident from the above clarification of CBEC that even if VAT / Sales tax was less than 4%, the appellant was entitled to refund of SAD which was 4% so long as VAT/sales tax was paid. In other words, so long as appropriate VAT/ Sales tax was paid, SAD refund was admissible even if the appropriate sales tax/ VAT was less than SAD; if the sales tax / VAT was NIL, so be it. In other words what is required in terms of the said notification is payment of appropriate sales tax/ VAT regardless of the rate thereof. It logically follows that if the appropriate rate of sales tax/ VAT was NIL then the appropriate sales tax/ VAT paid will also be NIL”

7. The judgement is brought to the notices of Trade, Industry and Professionals, which will help in resolving pending cases.