No CENVAT reversal under Rule 6 on SEZ supply wef 10/09/2004

CA Urvashi Porwal

Brief of the Case

In the case of Commissioner of Central Excise, Kolhapur Vs. M/s. Mather Platt Pumps Ltd., it was held that the supplies to SEZ should be treated as exports and no reversal of CENVAT is required to be done under Rule 6 as amended with effect from 10.09.2004.

Facts of the Case

The respondents are engaged in the manufacture and sale of pumps and parts thereof and registered under the Central Excise Act, 1944. The respondent supplied the final product, pumps along with other parts to M/s. Scenario India SEZ Project during July 2008 to December 2008 and the said supplies were made without payment of central excise duty as the clearance to a unit in SEZ and to a SEZ developer are exempt from duty. The respondent received a show-cause notice dated 19.07.2009 demanding an amount of 8,40,368/- being an amount equal to 10% of the total value of exempted goods cleared and sold by the respondent to SEZ developers during the said period along with interest and penalty.   The respondent filed a reply to the show-cause notice denying the allegations and also cited number of judgments in their favour. The AC confirmed the demand vide Order-in-Original dated 21.04.2009 along with interest and penalty. Thereafter the respondent filed appeal before the Commissioner who vide order dated 02.08.2010 set aside the Order-in-Original passed by the AC and allowed the appeal of the respondent on the ground that the Board vide circular no. 29/06-Cus dated 23.12.2006 issued instructions regarding the coming into force of SEZ Act in 2005, and as per the Boards circular of clearance without payment of duty from DTA not only SEZ unit but developers were in terms of Rule 19 of Central Excise Rules, 2002 and further the circular no. 6/10-Cus dated 09.3.2010 reiterated the provisions of circular no. 29/06-Cus and again confirms that the circular of duty free material for authorized operation in SEZ is admissible under Section 26 of SEZ Act. Against the said decision Revenue has filed the present appeal.

Contentions of the Revenue

The revenue contended that by notification no. 50/08-CE dated 31.12.2008 the government amended the CENVAT Credit Rules, 2004 and a clause was substituted in sub-rule 6 for clause (1) which reads as cleared to SEZ or to a developer of SEZ for their authorized operation. The revenue further contended that this amendment in Rule 6 is prospective in nature and would apply to supplies cleared from the date of notification only. The revenue also contended in this case the clearance to SEZ developer took place prior to issue of notification 50/08 therefore the assessee is required to pay 10% of the total price under Rule 6(3) of CENVAT Credit Rules, 2004. The revenue further contended that the ld. Comm. has wrongly held that the provisions of SEZ Act, 2005 have overriding effect over other statutes. The revenue also contended that the definition of export as contained in SEZ Act cannot be imported in Central Excise Act, 1944 and Customs Act, 1962. The revenue further relied upon the judgment of the Hon’ble High Court in Essel Packaging Ltd. 2015 (320) ELT 769.

Contentions of the Assesses

The assesses contended that the respondents are not liable to pay tax 10% of the value of the goods supplied to SEZ developers and that in terms of Section 2(m) of SEZ Act, the supplies from DTA to SEZ unit or to a developer of SEZ are treated as exports and such supplies are eligible for DEPB or drawback or any other export benefits. The assesses further contended that as per Section 2(o) of SEZ Act, 2005 the goods or service received in a SEZ or developer of SEZ are treated as import. The assesses further contended that the CBEC vide circular issued from F.No. 29/2006-Cus dated 27.12.2006 has clarified that the supplies made from DTA to SEZ unit or to a SEZ developer for their authorized operations inside the SEZ notified under sub-section (1) of Section 4 of the Act, may be treated as in the nature of exports. The same view has been reiterated by CBEC in subsequent circular no. 1001/8/2015-CX.8 dated 28.04.2015. The assesses further contended that the goods cleared to developer of SEZ are deemed exports and for such clearance without payment of duty, provisions of sub-rule (1), (2), (3), (4) of Rule 6 of CCR 2004 would not apply and no requirement of payment of 10% of the value of the goods cleared to SEZ developer, this issue is no more res integra in the light of the following judgments.

(i) Sujana Metal Products 2011 (273) ELT 112

Upheld by AP HC Order dated 2.7.2013 passed by Hon’ble High Court in Central Excise appeal no. 40 of 2012

(ii) UOI vs. Steel Authority of India 2013 (297) ELT 166

(iii) Patel Engineering Ltd. 2013-TIOL01129-Hon’ble High Court-AP-ST

(iv) Cummins India Ltd. 2012 (279) ELT 5

(v) CESTAT order no. A/3949/15/SMB dated 07.12.2015 in the case of Cemetile Industries.

Held by Hon’ble CESTAT

The Hon’ble CESTAT stated that the issue involved in this case is whether the demand of 10% of the value of the goods cleared to developers of SEZ is sustainable in a case where the supplies to developer of SEZ is deemed as export, and consequently whether the amendment to Rule 6(6)(1) of CCR 2004 (notification 50/08-CE dated 31.12.2008) would have retrospective effect or not.   Since the issue involved in this case is no more res integra in the light of the judgement cited above by the respondent, wherein the Tribunal and the Hon’ble High Court has clearly held that the goods cleared to developer of SEZ are deemed to be export and for such clearances, provisions of sub-rule (1), (2), (3), (4) of Rule 6 of CCR 2004 would not apply and consequently there is no requirement of payment of 10% of the value of the goods cleared to SEZ developers. Further it is also now settled position of law that the amendment to Rule 6(6)(1) to be retrospective and to apply with effect from 10.09.2004 as held in the decision cited supra. Further, The Hon’ble CESTAT stated that the judgement of the Hon’ble High Court relied upon by the revenue is not applicable in the facts and circumstances of the present case and is out of context as it relates to free trade zone and the supplies to which is not treated at par with export.

In view of the facts cited above, and the settled position of law that the supplies made to SEZ is treated as export, accordingly, demand of 10% of the value of the goods supplied to SEZ developers in terms of Rule 6(3b) of CENVAT Credit Rules, 2004 is not sustainable. Accordingly, The Hon’ble CESTAT dismiss the appeal of the Revenue.