Custom, Excise & Service Tax Tribunal
M/S. S.P. Fabricators Pvt. Ltd vs Cce, Chennai Ii on 6 August, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
E/727/2009
(Arising out of Order in Original No. 08/2009 dated 22.09.2009, passed by the Commissioner of Central Excise, Chennai - II ).
For approval and signature
Honble Shri P.K. DAS, Judicial Member
Honble Shri R. PERIASAMI, Technical Member
_______________________________________________________
1. Whether Press Reporters may be allowed to see the : No
order for Publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : No
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether the Honble Member wishes to see the fair : Seen
copy of the Order.
4. Whether order is to be circulated to the : Yes
Departmental Authorities? ______________________________________________________
M/s. S.P. Fabricators Pvt. Ltd. : Appellant
Vs.
CCE, Chennai II : Respondent
Appearance Shri Raghavan Ramabadran, for the appellant Shri P. Arul, Supdt. (AR), for the respondent CORAM Honble Shri P.K. DAS, Judicial Member Honble Shri R. PERIASAMI, Technical Member Date of Hearing : 06.08.2014 Date of Decision: 06.08.2014 FINAL ORDER No. 40862 / 2014 Per: R. PERIASAMI The present appeal is arising out of the impugned order passed by the Commissioner of Central Excise, Chennai II. The brief facts of the case are that the appellants are manufacturers of Aluminium Composite Panels with Glass falling under Chapter sub-heading 7610 1000 of the Central Excise Tariff Act, 1985 and registered under the Central Excise. They availed input credit on the inputs used in or in relation to the manufacture of final. They have cleared the final products to DTA on payment of excise duty and to SEZ developers cleared without payment of duty by following ARE-I procedures. They have not availed input credit on the materials used in the manufacture of finished goods cleared to SEZ developers. A Show Cause Notice dated 22.01.2009 was issued to the appellants demanding an amount equivalent to 10% of the transaction value on the goods cleared to SEZ developers/Co-developers, for the period involving June, 2008 to December, 2008. It has been alleged that the appellants have not maintained separate accounts in terms of Rule 6(2) of Cenvat Credit Rules, and used common inputs in the manufacture of dutiable and exempted finished goods cleared to non-SEZ buyers (i.e. SEZ developers). The adjudicating authority confirmed an amount of Rs. 71,94,674/- along with interest. Aggrieved by this order, the appellants filed the present appeal.
2. The Ld. Advocate on behalf of the appellants submits that they have followed the procedures prescribed under Central Excise Rules for clearance of goods without payment of duty. The SEZ developers were duly approved by the Development Commissioner of SEZs for import/procurement of indigenous goods with duty exemption. He further submits that they have submitted Letter of Undertaking (LUT) dated 11.01.2008 before the Dy. Commissioner of Central Excise, Chennai-II Division, in terms of Rule 19 of CER, 2002 before effecting clearance of excisable goods to SEZ developers without payment of duty. The said LUT has been duly accepted by the jurisdictional Dy. Commissioner. Accordingly, they have secured orders from the SEZs developers and cleared their finished goods without payment of duty. Clearance to SEZ developers deemed to be an export as per the Boards Circular No. 29/2006-Cus dated 27.12.2006. Therefore, it is covered by the provisions of Rule 6 (6) of CCR, 2004. They have followed ARE-I procedure prescribed under Rule 19 of CER for all the clearances made to SEZ developers. He submits that the goods cleared to SEZ developers are dutiable, but, cleared without payment of duty in terms of Rule 19 of the CER. He further submits that the amendment introduced under Rule 6 (6) (i) adding SEZ developers by notification No. 50/2008-CE (NT) dated 31.12.2008 is retrospective in nature. He relied upon the following case laws in support of his contention.
1. Sujana Metal Products Ltd. Vs. CCE, Hyderabad 2009 (243) ELT 542 (Tri.-Bang.)
2. Surya Roshni Ltd. Vs. Commissioner, Rohtak 2010 (256) ELT 85 (Tri.-Del.)
3. CCE, Ahmedabad Vs. Maize Products 2008-TIOL-596-HC-AHM-CX
4. TN Newsprint and Papers Ltd. Vs. CCE, Trichy 2010-TIOL-318-CESTAT-MAD
5. GOI Vs. Indian Tobacco Association 2005 (187) ELT 162
6. UOI Vs. Steel Authority of India Ltd.
2013 (297) ELT 166 (Chhattisgarh)
7. Sujana Metal Products Ltd. Vs. CCE Hyd.
2011 (273) ELT 112 (Tri.-Bang.)
8. AP HC judgment CEA No. 40/12 dt. 02.07.2013
3. On the other hand, the Ld. AR on behalf of the Revenue reiterates the findings of the Commissioner and submits that during the relevant period Rule 6 (6) (i) of CCR excludes only SEZ units and not Developers. The appellants have not cleared the excisable goods to SEZ units and it was cleared to SEZ developers. The appellants have not maintained separate accounts for the inputs used in the manufacture of both dutiable and exempted goods. He further submits that the amendment introduced in Rule 6(6) by notification No. 50/2008-NT dated 31.12.2008, is only prospective and cannot be applied retrospectively. The Ld. AR relies upon the following case laws in support of his arguments.
1. CCE Vs. M/s. Raghuvar (I) Ltd.
2000 (118) ELT 311 (SC)
2. CCE, Pondicherry Vs. Bansal Metallic Oxides 2013 (296) ELT 215 (Tri. Chen.)
3. BAPL Industries Ltd. Vs. UOI 2007 (211) ELT 23 (Mad.)
4. CCE, Thane Vs. Tiger Steel Engg. (I) Pvt. Ltd.
2010 (259) ELT 375 (Tri.-Mum.)
5. Advait Steel Rolling Mills Pvt. Ltd. Vs. UOI 2012 (286) ELT 535 (Mad.)
4. We have carefully considered the written submissions and the grounds of appeal and perused the records. The issue in this case relates to demand of an amount equivalent to 10% of the transaction value of the goods cleared to SEZ developers during the period from January to December, 2008. There is no dispute on the fact that the appellants cleared the goods to DTA on payment of excise duty and also cleared to SEZ developers/Co-developers without payment of duty. The adjudicating authority held that though the appellants not availed any Cenvat credit on the main inputs ie., panels and glasses used in the manufacture of goods cleared to SEZ developers, they availed contain common inputs which are used in the final products cleared to both DTA and SEZ developers. The adjudicating authority held that since the appellants had not maintained separate accounts of inputs as per Rule 6(2), they are liable to pay 10% of the value of the goods cleared to SEZ developers as there is no exclusion provided under Rule 6(6) for clearance to SEZ developers. Rule 6 (6) of CCR as it stood prior to December 2008 is reproduced as under:-
Rule 6 (6) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either-
(i) cleared to a unit in a special economic zone .
.
.
(v) cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002; or The Rule 6(6) was amended and the clause (i) was substituted vide Notification No. 50/2008-NT dated 31.12.08, which is reproduced as under:-
Rule 6(6) (i)
(i) cleared to a unit in a special economic zone or to a developer of a special economic zone for their authorized operations; or We find that the appellants while clearing the goods followed the procedure stipulated under Rule (30) of SEZ and Rule (19) of CER. All the clearances are treated as export duly accompanied by ARE-I as per ECR. The ARE-I is duly certified by the jurisdictional superintendent.
5. It is noticed that the identical issue has been discussed in detail in the Tribunals Order in the case of Sujana Metal Products Limited (supra). Subsequently, the Honble High Court of Chhattisgarh and in the case of UOI Vs. Steel Authority of India Ltd (supra) has discussed the issue at length and held that the goods supplied to SEZ developers are to be treated as exports under Section 2 (m) of SEZ Act. The relevant portion of the Honble HC order is reproduced as under:-
30.?The principle envisaged in Excise Act and the 2002 Rules as well as the Customs Act is the same as traditionally how the excise and customs duties were understood. It is clear from their provisions that excise duty is payable on the manufacture of the goods but is to be paid only in respect of those goods that are to be consumed within the country, and not that are to be exported. In case, the goods are to be exported then, customs duty - if it is leviable under the Customs Act read with the Customs Tariff Act - is to be imposed.
31.?With the aforesaid framework in the background, let us understand the purpose of the SEZ Act, clearance to units and developers in SEZ, and purpose of the newly substituted sub-rule 6(6)(i) of the 2004-Rules.
Purpose of SEZ and Clearance of Goods to SEZ is Export
32.?The Government of India introduced a policy on 1-4-2000 for setting up of the Special Economic Zones (SEZ), with a view to provide an internationally competitive and hassle free environment for exports. The units could be set up in the SEZ for manufacture of goods and rendering services. They were to be net foreign exchange earner and were not to be subjected to any pre-determined value addition or minimum export performance requirements.
33.?Initially, in order to implement the aforesaid policy, the Customs Act was amended and Chapter XA with Sections 76A to 76H was inserted. Subsequently, the SEZ-Act was enacted and Chapter XA of the Customs Act was deleted.
34.?Section 2 of the SEZ Act is titled definitions. It provides as follows Sub-section (g) of Section 2 [sub-section 2(g)] of the SEZ-Act defines developer. It means a person or a State, which is granted a letter of approval under sub-section(10) of section 3 [Section 3(10)] of the SEZ Act by the Central Government and includes an authority and a co-developer;
Sub-section (m) of Section 2 [sub-section 2(m)] defines the word export. It means supplying goods, or providing services, from the domestic tariff area to a unit or developer.
Sub-section (zc) of Section 2 [sub-section 2(zc)] defines the words existing unit and unit. It means, a unit which has been set up by an entrepreneur in a SEZ and includes an existing unit.
35.?Section 51 of the SEZ-Act is titled Act to have overriding effect. It provides that the SEZ-Act will have effect notwithstanding anything contained in any other law for the time being in force or in any other instrument. It has overriding effects over any other law and in case of conflict, the SEZ Act is to prevail.
36.?The SEZ-Act is within the territorial limits of the country; the goods supplied to the unit or to the developer in SEZ do not go outside the country, yet, in view of the definition in Section 2(m) of the SEZ Act, they are to be treated as export.
37.?In the present case, the Assessee had supplied goods from the domestic tariff area to a developer and it is to be treated as an export in view of sub-section 2(m) of the SEZ Act. In case it is treated to be export then all benefits as given to export under any other law should be given.
38.?In case, the general principle as well as the framework of the Customs Act or Excise Act is to be understood, in that event, there should not be any excise duty on anything which is supplied to a unit or developer. The principle that is applicable to the unit in the SEZ should also apply to a developer as well.
39.?The SEZ Act treats the unit as well as the developer on the same footing. The obligations arising under the Excise Act or the 2002-Rules or the 2004-Rules for a unit in SEZ should be same for a developer of SEZ; they should have same liabilities, same benefits. However, this was not so : there was some distinction in the 2004-Rules as they were initially framed.
40.?The Assessee is a manufacturer of the goods that are taxable under the Excise-Tariff Act. Rule 6 of the 2004-Rules (see Appendix-1) is titled obligation of a manufacturer of dutiable and exempted goods and provider of taxable and exempted services. It provides certain obligation on the manufacturer of such goods. The Assessee is one such manufacturer. It not only manufactures dutiable goods but exempted goods as well.
41.?Rule 6(2) read with Rule 6(3) of the 2004-Rules provide that separate accounts for dutiable goods be maintained or in the alternative 10% [this is the percentage under sub-rule 6(3)(b) of the 2004 Rules for the nature of goods manufactured by the Assessee] of the price of exempted goods be deposited. Admittedly, the Assessee has neither kept separate accounts for the dutiable goods as mandated under sub-rule 6(2) of the 2004-Rules nor it has deposited 10% as mentioned in sub-rule 6(3) of the 2004-Rules.
42.?Initially, sub-rule 6(6)(i) of the 2004-Rules (see Appendix 1) was as follows :
Rule 6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. -
(6)?The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either-
(i)?cleared to a unit in a special economic zone;
43.?Initially, sub-rule 6(6)(i) provided that the provisions of sub-rules 6(1) to 6(4) of the 2004-Rules will not be applicable in case the excisable products are removed without payment of duty and cleared to a unit in a SEZ.
44.?The relevant point to note is that the 2004-Rules as initially envisaged provided benefit to the goods cleared to a unit in SEZ only and not to the developer though under the SEZ Act the position of the developer as well as the unit was one and the same; they were in the same class, entitled to the same treatment. This appears to be an inadvertent omission.
45.?It appears that the aforesaid mistake was realized by the Government and rule 6(6)(i) of the 2004-Rules was substituted by the following new sub-rule (see Appendix-2) :
(i)?cleared to a unit in a special economic zone or to a developer of a special economic zone for their authorized operations.
46.?After substitution of Rule 6(6)(i) by the Amended Rules, the discrimination between the developer and a unit in SEZ has been obliterated. Both stand in the same footing. It is now in consonance with the Article 14 of the Constitution of India.
47.?Nevertheless, in case the submission of the Department - that the amended substituted sub-rule came into force from the date of its publication in the official gazette i.e. on 31-12-2008 - is accepted, then the discrimination would be there prior to 31-12-2008 though after this date it would not be there.
48.?The Central Government is a State within the meaning of Article 12 of the Constitution. It is prohibited to discriminate under Article 14 of the Constitution. In case the submission of the Department is accepted, it would leave the Central Government to the charge of discrimination. Could this be the intention; can this be presumed; should this be the result?
49.?In our opinion the emphatic answer to the aforesaid question is No.
50.?It is clear from the nature of the excise duty as it has been traditionally understood to be duty only on the manufacture of those goods that are to be consumed within the country and not on the goods to be exported. This is also framework of the Excise Act. As the supply of the goods to a developer of SEZ is treated to be export, there appears to be no reason why this benefit was not there, except that it was due to a mistake or inadvertence that the word developer was not initially included in the sub-rule 6(6)(i) of the 2004-Rules and the developers and units were not given same treatment.
51.?It is settled rule of interpretation that rule or notification takes effect from the date it is issued and not from any prior date. However, Justice G.P. Singh in his book Principles of Statutory Interpretation 12th Edition, 2010 at page 1021 observes, A rule, which is not in terms retrospective, may have retrospective operation because of the retrospective operation of the enactment in respect of which it is made. So is the case here. The substituted sub-rule 6(6)(i) of the 2004-Rules should have retrospectively in order not to discriminate and to be in consonance with the nature of excise duty.
52.?In our opinion, the rule is clarificatory, corrects an obvious mistake, removes discrimination, and provides correct legal principle. Its prospective enforcement would leave it to be suspect at the touchstone of Article 14 of the Constitution. Considering this aspect it is proper to hold that the substituted sub-rule 6(6)(i) came into force from the date the 2004-Rules were enforced.
6. The above decisions of the Honble High Court is squarely applicable to the facts of the present case, as the appellants cleared the finished goods to SEZ developers by following ARE-I procedure prescribed under Rule (19) of CER, which is duly approved by the jurisdictional Central Excise authority and also accepted LUT executed by the appellants for this purpose. The Honble High Court in the above decision also held that the amendment introduced in Rule 6(6) on 31.12.2008, substituting clause (i) by adding both the units of SEZ and developers is retrospective in nature. The Honble High Court of Andhra Pradesh has upheld the Tribunal Order in the case of Sujana Metals (supra) vide High Court Order (in appeal No. 40 of 2012) dated 02.07.2013, dismissed the Revenue appeal.
7. Respectfully following the decision of the Honble High Court of Chhattisgarh, we hold that the goods cleared to SEZ developers are treated as export as the appellants followed ARE-I provision. The amended provisions of Rule 6 (6) is applicable retrospectively as held by the Honble High Court The demand confirmed by the adjudicating authority is not sustainable. Accordingly, we set aside the impugned order and allow the appeals filed by the appellants with consequential benefits if any.
(Order pronounced in the Open Court on 06.08.2014)
(R. PERIASAMI) (P.K. DAS)
TECHNICAL MEMBER JUDICIAL MEMBER
BB
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