Custom, Excise & Service Tax Tribunal
M/S Moser Baer India Ltd vs Cce, Noida on 26 June, 2009
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. III LARGER BENCH DATE OF HEARING : 30/3/09. DATE OF DECISION: 26/6/09. Central Excise Appeal No. 869 of 2008 Arising out of the Misc. Order No. 682/2008-Ex., dated 22.7.2008 passed by the CESTAT New Delhi. M/s Moser Baer India Ltd. Appellant Versus CCE, Noida Respondent
Appearance S/Shri V. Laxmikumaran and A.R. Madhav Rao, Advocates for the appellant.
Shri H.K. Thakur, Authorized Departmental Representative (Jt. CDR) for the Respondent.
CORAM : Honble Shri M. Veeraiyan, Member (Technical) Honble Shri P.K. Das, Member (Judicial) Honble Shri Rakesh Kumar, Member (Technical) Order No. ________________ Dated : ,,,,,,,,,,,_____________ Per. M. Veeraiyan :-
The referral Bench vide Misc. Order No. 628 of 2008 dated 22/07/08 referred the following question of law to be decided by the Larger Bench :
Whether in respect of a 100% EOU availing Sales tax exemption, for determining the excise duty payable based on aggregate value of Customs duty, the element of SAD should be taken into account or not?
2. Heard both sides. After the hearing was over, the Ld. Advocate for the appellant filed a written submission dated 20/4/2009 and the Ld. Jt. CDR filed a written submissions dated 11/5/2009.
3. The relevant facts, in brief, as narrated in the referral order, are as follows :
(a) The appellant is a 100% EOU having their unit in the area specified by the State Government of Uttar Pradesh for the purposes of concession from payment of Sales Tax/VAT; they are engaged in the manufacture of CDR, CD ROM, DVDR. DVD ROM falling under Chapter Heading 8523 of the Central Excise Tariff.
(b) The appellant has been issued with an eligibility certificate on 30/7/02 for availing the exemption from Sales Tax/VAT available for units set up in specified backward-area.
(c) The appellant sold part of their goods in DTA on payment of concessional rate of duty in terms of Notification No. 23/03-CE dated 31.3.03. Such goods cleared in DTA were exempt from Sales Tax.
(d) Department felt that while calculating the aggregate value of Customs duty under Notification No. 23/03-CE readwith notification No. 22/2006-CE dated 1.3.06, the duty (SAD) element of 4% should be included on the ground that the goods cleared by the said EOU to DTA are exempt from payment of Sales Tax. Accordingly, show cause notice was issued proposing to include the element of 4% duty (SAD).
(e) The Commissioner, by his impugned order confirmed the demand of Rs. 10,27,94,461/- and imposed equal penalty.
4. Learned Advocate for the appellant made the following submissions:
(a) The appellants being an EOU, are, normally, required to export the goods in terms of provisions of the Foreign Trade Policy. The appellants also sell part of the goods in DTA. When the goods are sold in DTA, the appellants discharge their duty liability by availing the concession under Sl. No. 2 of Notification No. 23/2003-CE dated 31/3/03, as amended by Notification No. 22/06-CE dated 1/3/06.
(b) The State Government asked the appellants to set up a factory in a backward area to foster industrialization. The appellants have been granted certain incentives by the State Government to set up their unit in the specified backward area. To enable them to compete against industries in the forward area, incentives in the form of waiver of sales tax levied was granted and the amount of the sales tax assessed is deducted from the total amount of the incentive. Therefore, the goods cleared by them to DTA were exempt from Sales Tax. The domestic industry is not suffering such a duty.
(c) When SAD was introduced in the year 1998, the Finance Minister in his Budget Speech, had specifically stated that the Government of India is imposing the Special Additional Duty in order to counterbalance the sales tax which is imposed on domestically procured like goods. Therefore, any Notification issued under Section 3 (5) of the Customs Tariff Act for levying of SAD on goods imported into India can only be for the purpose of counterbalancing the sales tax/VAT which is levied on like goods in the State on its sale, purchase and in this case, SAD would not be attracted since there is nothing to counterbalance in this regard. This follows from the reasoning in the case of Thermax wherein pari materia provisions of Section 3(1) of CTA were construed. The Explanation under Section 3 (5) is similar to the Explanation occurring under Section 3 (1) and construed by the Honble Supreme Court in Thermax case. The amendment vide Notification No. 22/2006-CE made to Sl. No. 2 to Notification No. 23/2003-CE is not in consonance with the provisions of Section 3 (5) of the Customs Tariff Act and is ultravires to the scheme of Section 3 (5). The Notification cannot stand in the way of the appellants when main Section 3 (5) is not attracted since there is nothing to counterbalance in this regard.
(d) The levy of SAD is assessee specific. Where the assessee is able to satisfy that there is a domestic sales tax exemption notification, then in such a case, SAD is not leviable. In other words, the very same exercise which is being done for the levy of CVD under Section 3 (1) as per the law laid down by the Honble Supreme Court has to be followed in the case of SAD on a claim being lodged by the assessee.
(e) The appellants are availing the concession under Section 4A of U.P. Trade Tax Act and therefore the goods cannot be said to be exempt from payment of Sales Tax/Value Added Tax. This does not mean that the goods cleared without payment of sales tax by availing the concession/incentive under Section 4A, 4AA etc. have become exempted from payment of sales tax.
(f) In such a scenario SAD cannot be levied under Section 3 (5) of the Customs Tariff Act as it will be beyond the scope and objective of the provision.
5. Learned Jt. CDR made the following submissions :
(a) The levy under Section 3 (5) of the Customs Tariff Act is to provide a level playing field between imported goods and indigenous goods; the levy is neither assessee specific nor area specific. The counterbalancing of Sales tax/Value added tax and other local taxes or charge in sale, purchase or transportation of like goods in India, referred to in Section 3 (5) is to be decided by the Central Govenrment at macro level by issuing a notification under this subsection fixing a rate of SAD, not exceeding 4% adv, not at micro level by the assessing officer.
(b) There is no notification granting exemption to the category of goods manufactured by the assessee from sales tax on an all India basis. Such goods manufactured elsewhere are liable to sales tax. In fact, the goods cleared by the assessee to other States reportedly suffer sales tax.
(c) Each clearance from EOU should be examined as to whether the same pays sales tax or is exempt from sales tax and in respect of cases where sales tax is not paid, SAD requires to be added while determining the tax payable.
(d) In Sl. No. 2 to the table annexed to exemption notification No. 23/03-CE dated 31/3/03, as amended by Notification No. 22/06-CE dated 1/3/06, the word exempt in the proviso is not qualified by the word generally. Moreover, the proviso is an exception to the exemption from SAD and the same cannot be ignored. In this regard, reliance is placed on Honble Supreme Courts judgment in case of Novopan India Ltd. vs. CCE, Hyderabad reported in 1994 (73) E.L.T. 769 (S.C.)
6. We have carefully considered the detailed submissions including the written submissions from both the sides and we find the issues involve interplay of the provisions of the Customs Act, the Central Excise Act and laws on Sales Tax by various State Governments.
7.1 SAD under Section 3 (5) of the Customs Tariff Act is a levy on the imported goods to counterbalance the sales tax, value added tax, local tax or any other charges. It had earlier been levied under Section 3A inserted by Section 104 of the Finance Act, 1998 and w.e.f. 13/5/05 by inserting sub-Section (5) of Section 3 of the Customs Tariff Act, replacing the earlier Section 3A. It is imposed by the Central Government by issue of a notification under Section 3 (5) of the Customs Tariff Act and the rate at which the levy is to be imposed is determined taking into account the rates of Sales Tax and other taxes levied by the State Governments.
7.2 The submission that since SAD is imposed in order to counterbalance the sales tax/value added tax in each case of import, the rate of SAD would depend upon the rate of sales tax/VAT imposable on the imported goods in the state where the same are to be sold, and the SAD would be nil if the sales tax/VAT on the imported goods in the state, where the same are to be sold is nil, is incorrect as
(a) Unlike the Additional Customs duty under Section 3(1) of the Customs Tariff Act, in respect of which in the subsection itself, the rate of duty for the goods, other than alcoholic liquor for human consumption, is mentioned as equal to the central excise duty for the time being leviable manufactured in India, in respect of SAD, Section 3 (5) is only an enabling provision, authorising the Central Government to levy this duty on imported goods, in order to counterbalance the sales tax value added tax, local tax on any other charges for the time being leviable or like article on its sale, purchases or transportation in India, at a rate not exceeding 4% adv. by a notification issued in this regard ;
(b) the Central Government, by Notification No. 19/2006-CUS dated 1/3/06, issued under Section 3 (5) of the Customs Tariff Act, having regard to sales tax, VAT, local taxes and other taxes or charges leviable on sale, purchase transportation of like goods in India, has specified SAD at the rate of 4% adv. in respect of import of all the goods mentioned in the 1st schedule to the Customs Tariff Act and
(c) the only exemption from SAD is by notification No. 20/2006-CUS dated 1/3/06 issued under Section 25 (1) of the Customs Act, 1962 which lists out the articles in respect of which the SAD is nil or 1% adv. or 4% adv.
7.3 In view of the above scheme of levy of SAD under Section 3 (5) of the Customs Tariff Act, the rate of SAD leviable on any goods imported into India has to be determined by Notification No. 19/06-CUS dated 1/3/06 issued under Section 3 (5) of the Customs Tariff Act, readwith exemption Notification No. 20/06-CUS dated 1/3/06 issued under Section 25 (1) of the Customs Act 1962 and there is no provision authorising the concerned assessing officers to consider counterbalancing aspect while determining the SAD on import of any goods and determining the same on the basis of the actual rate of sales tax/VAT/local taxes in the state where the imported goods are to be sold. In other words, the SAD leviable under Section 3 (5) is not to be determined by the assessing officers in the manner in which Additional Customs duty under Section 3 (1) on goods, other than alcoholic liquor for human consumption is determined. Administratively, such an arrangement for levy and collection of SAD would be highly cumbersome and messy. Therefore the word counterbalance in the expression such additional duty as would counterbalance the sales tax, value added tax, local tax on any other charges for the time being leviable on alike article on its sale, purchase or transportation in India, in Section 3 (5) refers to the counterbalancing aspect at macro level to be considered by the Central Government while fixing the rate of SAD by issue of a notification under this section, not to the counterbalancing at micro level individual casewise by the concerned assessing officers. The rate of SAD is fixed by the Central Government taking into consideration prevailing rates of sales tax/VAT and other local taxes and charges in different states subject to ceiling of 4% adv. In fact under proviso to Section 3 (1) there is similar arrangement for levy of Additional customs duty on alcoholic liquor for human consumption, whose rate is notified by the Central Government taking into account the state excise duty leviable on alcoholic liquor for consumption in different State Governments.
7.4 The exemption granted by some of the states cannot affect the rate prescribed under Section 3 (5) notification and similarly the exemption granted by a state government in respect of assessee in some specified areas can have no bearing on the rate of SAD, fixed by the Central Government by a notification issued under Section 3 (5).
7.5 The Tribunal is not the forum to consider whether the Central Government has correctly fixed the rate of SAD so as to counterbalance the sales tax/VAT and local taxes/charges or not and no appeal against such decision to impose SAD by a notification issued by the Central Government lies with the Tribunal. Similarly whether the SAD levied in any way against the statement/assurance given by the Finance Ministry in his Budget speech that the Government of India is imposing SAD in order to counterbalance the sales tax/VAT imposed on domestically procured like goods, cannot be gone into by the Tribunal.
7.6 We also find from a reading of Section 3 (5) that the levy of SAD under this sub-section on import of any article is not dependent on the sales tax payable, but whether sales tax is leviable on it. Therefore, if an article on which sales tax/value added tax or other local taxes are leviable, has been notified by the Central Government by a notification issued under Section 3 (5) as attracting SAD at say 4% adv., the SAD would be chargeable on import of that article even if in some State Governments or in some areas of a particular State Government, that article has been fully exempted from the payment of sales tax/VAT.
8. As per the provision of the proviso to Section 3 (1) of the Central Excise Act, 1944, the DTA clearances of a 100% EOU are chargeable to Central Excise duty equal to the aggregate of the duties of Customs which would be leviable under the Customs Act, 1962 or any other law for the time being in force, on like goods produced or manufactured outside India, if imported into India and if the said duties of customs are ad-valoram, the value is to be determined under the provisions of the Customs Act, 1962 and Customs Tariff Act, 1975. However, Notification No. 23/03-CE dated 31/3/03, as amended by Notification No. 22/06-CE dated 1/3/06, in respect of the DTA clearances as per the EXIM policy, prescribes an effective rate of excise duty which is equal to the aggregate of duties of customs, as if
(a) Basic customs duty has been reduced by 75% and ;
(b) no SAD under Section 3 (5) of Customs Tariff Act, 1975 is leviable; with proviso that while calculating the aggregate of customs duties, additional duty of customs leviable under sub-Section 5 of Section 3 of the Customs Tariff Act shall be included, if the goods cleared into DTA are exempt from payment of Sales Tax or Value Added Tax. Since in this case, the rate of SAD under Notification No. 19/06-CUS readwith Notification No. 20/06-CUS dated 1/3/06 is 4% adv. and since the condition for exclusion of SAD component, as specified in the Notification No. 23/03-CE dated 31/3/03 as amended by Notification No. 22/06-CE dated 1/3/06 is not satisfied in respect of DTA sales within the State of U.P., in respect of such DTA clearances, the component of SAD has to be included for determining the central excise duty equal to the aggregate of duties of customs, chargeable on the goods. It is settled law that an exemption notification has to be strictly construed, on its own wordings. [Honble Supreme Courts judgment in cases of (i) M/s Novapan India Ltd. vs. CCE, Hyderabad reported in 1994 (73) E.L.T. 769 S.C. (ii) CCE, Trichy vs. Rukmani Packwell Traders, reported in 2004 11 SCC 801 and (iii) CCE, Chandigarh I vs. Mahan Dairies reported in 2004 11 SCC 798].
8.1 It has been pleaded that levy of SAD on DTA clearances neutralises the exemption from sales tax enjoyed by the Appellant while the DTA units do not suffer such a levy. This contention is unacceptable for the simple reason that Honble Supreme Court in a series of judgments CIT, WB vs. Central India Industries AIR 1972 S.C. 397; Laxmikant vs. Wealth Tax Commissioner AIR 1973 S.C. 2258 and CIT vs. Gwalior Rayon Silk Manufacturing Co. AIR 1992 S.C. 1782, has held that equitable considerations are not relevant in construing a taxing statute.
8.2 It has been pleaded that the Appellants are availing the concession under Section 4A of the U.P. Trade Tax Act and, therefore, the goods cannot be said to be exempt from payment of Sales Tax/Value Added Tax. The relevant portion of Section 4A of U.P. Trade Tax Act, 1948 is reproduced below :
4A: Exemption from Trade Tax in certain cases (1) Notwithstanding anything contained in any other provisions except the provisions of Section 3-H of this Act, where the State Government is of the opinion that it is necessary so to do for increasing the production of any goods or for promoting the development of any industry in the State generally or in any district or parts of district in particular, it may on application or otherwise, in any particular cases or generally, by notification, declare that the turnover of sales in respect of such goods by the manufacturer thereof, shall, during such period not exceeding fifteen years form such date on or after the date of starting production as may be specified by the State Government in such notification, which may be the date of the notification or a date prior or subsequent to the date of such notification, and where no date is so specified from the date of first sale takes place within six months from the date of starting production, and in any other case from the date following the expiration of six months from the date of starting production, and subject to such conditions as may be specified, be exempt from trade tax on sale of goods whether wholly or partly or be liable to tax at such reduced rate as it may be 8.2.1 They are thus, under Section 4A of U.P. Trade Tax Act, given exemption from payment of Sales tax/VAT for a period of fifteen years subject to a maximum value of capital investment. The Appellant are thus availing sales tax exemption in respect of the sales from their unit, located in a notified backward area within the State of U.P. and in respect of these sales/clearances, while determining the central excise duty liability, SAD would have to be included.
9. The appellants plea that ratio of Honble Supreme Courts judgment in case of Thermax Private Ltd. vs. Collector of Customs reported in 1992 (61) E.L.T. 352 (S.C.) is applicable to the facts of this case, is not correct. In case of Thermax Private Ltd. (supra), Honble Supreme Court held that a central excise exemption notification applicable to clearance of certain excisable goods for a specific use subject to the condition of observing the procedure prescribed in Chapter X of the Central Excise Rules, 1944, would be applicable for determining the Addition Customs duty under Section 3 (1) of the Customs Tariff Act on the like goods manufactured outside India and imported into India for the same specific end use, but in respect of which, Chapter X procedure cannot be followed. The issue involved in the present case is totally different whether while calculating the central excise duty equal to the aggregate of duties of customs chargeable on DTA clearances of a 100% EOU in terms of the provisions of exemption Notification No. 23/03-CE dated 31/03/03 as amended by Notification No. 22/06-CE dated 1/3/06, SAD leviable under Section 3 (5) of the Customs Tariff Act is to be included even when the DTA sales are exempt from sales tax or Value Added Tax (VAT) and there is no issue relating to observance of a procedural condition for availing an exemption notification is involved. The condition for non inclusion of SAD, that the goods should not be exempt from sales tax/VAT cannot be called a procedural condition. Therefore the Honble Supreme Courts judgment in case of Thermax Private Limited (supra) does not help the Appellants.
10. The Appellant have cited Honble Supreme Courts judgment in case of Commissioner of Sales Tax, J & K vs. Pine Chemicals reported in (1995) 1 SC cases 58 wherein it was held that conditionally exempt goods are not to be treated as goods generally exempt from sales tax for the purpose of Section 8 (2A) of Central Sales Tax Act. This judgment also does not help the Appellant as in the proviso to S. No. 2 of the table annexed to Notification No. 23/03-CE, as amended, Additional customs duty leviable under Section 3 (5) of the Customs Tariff Act shall be included, if the goods cleared into DTA are exempt from payment of Sales Tax or Value Added Tax and the word exempt is not qualified by the word generally. The word exempt in the expression if the goods are cleared into Domestic Tariff Area are exempt from payment of Sales or Value Added Tax would cover unconditional general exemption as well as conditional area based exemption.
11. We find that the Tribunal in case of Hanil Era Textiles vs. CCE, Belapur reported in 2000 (210) E.L.T. 414 (Tri.- Mum.) has taken a view that since the assessee are situated in a backward area where they are enjoying full sales tax exemption, no SAD under Section 3A of the Customs Tariff (predecessor of the present sub-Section (5) of Section 3) can be charged from them as the measure of SAD under Section 3A being sales tax, is nil. The Tribunal in arriving at this decision, has relied upon the decision in case of Morarjee Brembana Ltd. vs. CCE, Nagpur reported in 2003 (154) E.L.T. 500, and Jindal Photo Film Ltd. vs. CC, Mumbai reported in 2004 (178) E.L.T. 955. The relevant portions of the decision in case of Hanil Era Textiles (supra) are reproduced below :-
2 (a) These findings do not consider the claim of the assessee for full exemption of SAD under S. No. 3 of Notification No. 22/99-CUS dated 28/2/99 for the reason of full exemption to Basic Customs duty and CVD vide Notification No. 53/97-CUS dated 3/6/97 upto 31/3/03 and thereafter Notification No. 52/03-CUS dated 31/3/03 for imports of EOU, as claimed by the assessee. The denial of the benefit of S. No. 4 of the table to the Notification No. 22/99-CE arrived by the Commissioner is not upheld for the reason that there was no grounds arrived to deny the claim. The Commissioner is finding that the decision of Morarjee Brambana (supra) wherein it has been held that SAD is not applicable to sales by EOU to DTA, is not applicable for the reasons as arrived in the order impugned, as extracted supra. The non levy of Additional Duty of Excise (Goods of Special Importance) Act, 1957 would not Ipso facto lead to a conclusion that SAD has to be charged.
(b) The assessee is admittedly not discharging sales tax for the reason of being situated in an area, as specified under the Sales Tax Act. The Appellant has strongly contended that when there is no sales tax, there can be no levy of SAD. The said levy was introduced w.e.f. 2/6/98 under new Section 3A of the Customs Tariff Act, 1975 and was applicable only to imports. Apart from the fact that whether sale from EOU to DTA has to be treated imports or not, we also note that the measure of the said levy was equivalent to sales tax and when the appellant was not required to pay sales tax; no SAD can therefore be confirmed also. When Tribunal decision in case of Morarjee Brembana Ltd. (100% EOU) vs. CCE, Nagpur (supra) or readwith Jindal Photo Film Ltd. 2004 (178) E.L.T. 955, we see no reason to take a different view. We accordingly hold that confirmation of SAD against the appellant is not in accordance with law. The same is set aside.
11.1 The above decision of the Tribunal is with regard to Section 3A of Customs Tariff Act (now deleted) and Notification No. 22/99-CUS dated 28/2/99 issued under Section 3A (1). The Section 3A of Customs Tariff Act and Notification No. 22/99-CUS dated 28/2/99 are similar to the present Section 3(5) of Customs Tariff Act and Notification No. 19/06-CUS dated 1/3/06 readwith exemption Notification No. 20/06-CUS dated 1/3/06. The relevant portion of Section 3A and of the Notification No. 22/99-CUS dated 28/2/99 are reproduced below :-
Section 3A. Special additional duty (1) Any article which is imported into India shall in addition be liable to a duty (hereinafter referred to in this section as the special additional duty), which shall be levied at a rate to be specified by the Central Government, by notification in the Official Gazette, having regard to the maximum sales tax, local tax or any other charges for the time being leviable on a like article on its sale or purchase in India :
Provided that until such rate is specified by the Central Government, the special additional duty shall be levied and collected at the rate of eight per cent of the value of the article imported into India.
Explanation In this sub-section, the expression maximum sales tax, local tax or any other charges for the time being leviable on a like article on its sale or purchase in India means the maximum sales-tax, local tax, other charges for the time being in force, which shall be leviable on a like article, if sold or purchased in India, or if a like article is not so sold or purchased which shall be leviable on the class or description of articles to which the imported article belongs.
Notification 22/99 CUS dated 28/2/99 In exercise of the powers conferred by sub-section (1) of Section 3 A of the Customs Tariff Act, 1975 (51 of 1975), the Central Government having regard to the maximum sales tax, local tax or any other charges for the time being leviable on the like goods on their sale or purchase in India, hereby specifies the rates of special additional duty as indicated in column (3) in the Table below in respect of goods, when imported into India, specified in corresponding entry in column (2) of the said Table and falling within the First Schedule to the said Customs Tariff Act :
Provided that in respect of the goods specified against S. Nos. 2, 3 and 4 of the said Table, Nil rate shall be subject to the conditions, if any, subject to which the goods are exempt either partially or wholly from the duty of customs leviable thereon which is specified in the First Schedule to the said Customs Tariff Act.
3. All goods falling under the said First Schedule, Nil Which are exempt from (a) the whole of the duty of customs leviable thereon under the said First Schedule, and (b) the whole of the additional duty of customs leviable thereon under sub-section (1) of section (3) of the said Customs Tariff Act.
4. All goods falling under the said First Schedule - Nil
(a) in the case of which Free rates of duty of customs are specified in column (4) or column (5), as the case may be, of the said First Schedule, and (b) which are exempt from the whole of the additional duty of customs leviable thereon under sub-section (1) of section (3) of the said Customs Tariff Act or on which no amount of said additional duty of customs is payable for any reason.
5. All goods falling under the said First Schedule, Nil which are imported for sale as such, other than by way of high seas sale and the importer at the time of importation or at the time of clearances of warehoused goods for home consumption under the provisions of section 68 of the Customs Act, 1962 (No. 52 of 1962), as the case may be, makes a specific declaration to that effect in the bill of entry in the manner specified below :
Provided that the rate specified herein shall not apply if the importer sells the said imported goods from a place located in an area where no tax is chargeable on sale or purchase of goods.
Declaration I/We hereby declare that the goods of description . Imported under Bill of Entry No. .. dated . Are for sales purpose only. I/we also declare that sale of said goods will not be effected from a place located in an area where no tax is chargeable on sale or purchase of goods. In case the said goods are disposed of in any manner in contravention of the conditions specified in notification No. 20/99-Customs, dated the 28th February, 1999, without prejudice to any other action that may be taken under any law for the time being in force, I/we undertake to pay the special additional duty of customs of Rs. , which is leviable on these goods, but for exemption contained in the said notification. 11.2 The Tribunals decision with regard to SAD in Hanil Era Textile case is based on -
(a) Tribunals earlier decision in case of Morarjee Brembana Ltd. (100% EOU) vs. CCE, Nagpur (supra) and Jindal Photo Film Ltd. reported in 2004 (178) E.L.T. 955 ;
(b) Exemption from SAD available in terms of S. No. 3 of the table of Notification 22/99-CUS dated 28/2/99 has not been considered ; and
(c) The measure of levy under Section 3A is equivalent to Sales tax and when the appellant was not required to pay sales tax, no SAD can be confirmed.
11.3 In the Tribunals judgment in case of Morarjee Brambana Ltd. (supra) the period of dispute was prior to 16/9/99, when as per the provisions of Notification No. 2/95-CE, for calculating the rate of duty on DTA clearances of a 100% EOU, which are within the DTA entitlement of the unit as per the EXIM policy, only the basic customs duty was to be taken into account and Additional Customs duty under Section 3 (1) of Customs Tariff Act and SAD under Section 3A of the Customs Tariff Act was not to be taken into account. It is on this ground that in Morarjee Brembana Ltd. case, the demand of duty on account of inclusion of SAD component was set aside. The Tribunals decision in Hanil Era Textile case does not discuss as to how the decision in Morarjee Brembana Ltd. is applicable to the case of Hanil Era Textile where the issue involved was whether SAD under Section 3A of Customs Tariff Act would be required to be taken into account for determining the Central Excise duty chargeable on the DTA clearances of the unit, when DTA sales were fully exempt from Sales tax, which was not involved at all, in Morarjee Brembana case.
11.3.1 As regards Tribunals decision in case of Jindal Photo Films Ltd. vs. CC, Mumbai reported in 2004 (178) E.L.T. 955, the ratio of this decision was that the word chargeable in the proviso to S. No. 5 of the table to Notification 22/99-CUS dated 28/2/99 and its predecessor Notification No. 56/98-CUS has been used in the sense synonymous with leviable and accordingly any goods fully exempt from sales tax in a region by virtue of an exemption notification will still be treated as the goods on which sales tax is leviable and accordingly the Jumbo films imported by Jindal Photo Film Ltd. for sale to M/s Consolidated Photo & Fimvest Ltd. (CPFL), Dadra & Nagar Haveli, would be exempt from SAD in terms of S. No. 5 of the table to Notification No. 22/99-CUS and 56/98-CUS even though the sale of jumbo film was fully exempt from sales tax. While for the goods covered under S. No. 5 of the table to Notification No. 22/99-CUS and 56/98-CUS the condition for exemption SAD, as interpreted by the Tribunal in the above-mentioned decision, is that the goods are not sold from an area where no tax on these sale is leviable, the condition for exclusion of SAD while calculating central excise duty in respect of DTA clearances of a 100% EOU, in accordance with the provisions of the proviso to Section 3 (1) of the Central Excise Act, 1944, readwith exemption Notification No. 2/95-CE, as amended (S. No. 1 of the table annexed to the Notification) is that the goods cleared into DTA by the EOU are not exempted by the State Government, from payment of Sales Tax. Therefore Tribunals decision in case of Jindal Photo Films Ltd. (supra) was not applicable, at all to the facts of Hanil Era Textiles case. The provision of S. No. 2 of the table to Notification No. 23/03-CE as amended by Notification No. 22/06-CE dated 1/3/06 and of S. No. 1 & 2 of the table to Notification No. 2/95-CE, as amended, regarding effective rate of central excise duty on DTA clearances of a 100% EOU are similarly worded and therefore Tribunals decision in case of M/s Jindal Photo Film Ltd. (supra) will not be applicable to the present case also.
11.4 S. No. 3 of the table annexed to Notification No. 22/99-CUS dated 28/2/99 prescribed nil rate of SAD for all the goods falling under 1st Schedule to the Customs Tariff Act, which are exempt from whole of basic customs duty and whole of Additional Customs duty leviable under Section 3 (1) of the Customs Tariff Act. While a 100% EOU importing inputs and capital goods free of basic customs duty and Additional Customs duty under Notification No. 53/97-CUS dated 3/6/97 upto 31/3/03 and thereafter Notification No. 52/03-CUS dated 31/3/03 would be eligible for full SAD exemption in terms of S. No. 3 of the table to Notification 22/99-CUS, this SAD exemption would not be applicable while calculating aggregate of duties of customs for determining central excise duty chargeable in respect of the DTA clearances. Therefore Tribunals observations in para 2 (a) of the decision in Hanil Era Textile case regarding eligibility for exemption from SAD in terms of S. No. 3 of the table to Notification No. 22/99-CUS are not correct.
11.5 Tribunals observation in para 2 (b) of its decision in Hanil Era Textile case that the measure of SAD under Section 3A of the Customs Tariff Act was equivalent to Sales tax, no SAD can be conformed, is factually incorrect. As can be seen from the provisions of Section 3A, as reproduced in para 11.1 above, sub-Section (1) of Section 3A is only an enabling provision enabling the Central Government to levy SAD at a rate to be specified by notification, having regard to maximum sales tax, local taxes or any other charges leviable on a like articles on its sale or purchase in India, with a proviso that until such a rate is specified, SAD shall be collected at the rate of 8% adv. sub-Section (2) of Section 3A defines the assessable value for calculating SAD. Sub-Section (5) of Section 3A, states that no SAD would be chargeable on the goods which are chargeable to Additional duty of Excise under Section 3 (1) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957. Sub-section (4) of Section 3A makes the provisions of Customs Act, 1962 and the rules and regulations made thereunder applicable to this levy. Thus nowhere in Section 3A the measure of SAD as being equivalent to Sales tax has been specified. If this had been so, there would have been no necessity to issue Notification No. 22/99-CUS dated 28/2/99 under Section 3A (1) of Customs Tariff Act, specifying rates of SAD on import of various categories/clearance of the goods. Therefore the conclusion in Hanil Era Textile case that when the Appellant is not required to pay sales tax as the same is fully exempt, no SAD would be chargeable is without any basis, 11.6 Therefore, as submitted by learned Jt. CDR, the ratio of the decision in case of Hanil Era Textile case can not be adopted.
12. When clearances are effected from the 100% EOU, the assessment is required to be done. The rates of duty applicable and the valuation are to be determined at the time of removal. In the present case there are cases of clearances on which sales tax leviable is exempted and there are cases where sales tax is being paid. As assessment has to be undertaken at the time of each removal, we hold that in respect of clearances on which sales tax is paid, the SAD component should not be included.
13. From the above, the following emerges :
(a) Section 3 (5) enables levy by the Central Government on imported goods to counterbalance the sales tax, VAT, local tax and other charges. The conditions and the maximum rate of levy which can be imported have been prescribed under Section 3 (5) itself. The exercise which is required to be done before levying duty under Section 3 (5) is the responsibility of the Central Government. The levy is on goods imported. The said levy is not assessee specific or area specific or State specific. We do not find that the levy is beyond the powers of the Central Government or in violation of any conditions or limitations prescribed under Section 3 (5) of the CTA.
(b) At any rate, the Tribunal cannot go into the legality of levy under Section 3 (5) by issue of Notification.
(c) In respect of clearances made from a 100% EOU, as the assessment is required to be done at the time of removal the Notification No. 20/2003-CE dated 31/3/2003 as amended by Notification No. 22/2006-CE dated 1/3/06 has to be applied clearance wise.
(d) In the present case, the appellant is availing special exemption granted by the State of U.P. in respect of clearances made to DTA within U.P. only and are paying sales tax in respect of clearances made to some of the States. In other words, part of the clearances are not suffering sales tax while rest of the clearances are subject to sales tax/vat.
(e) In respect of clearances on which sales tax is exempted, SAD components should be included while determining duty in terms of the Notification No. 20/2003-CE dated 31/3/2003 as amended by Notification No. 22/2006-CE dated 1/3/06 and in respect of clearances on which sales tax is paid, the SAD component should not be included while determining duty in terms of the Notification No. 20/2003-CE dated 31/3/2003 as amended by Notification No. 22/2006-CE dated 1/3/2006.
14. In view of the above, the reference is answered as follows :
In respect of a 100% EOU availing sales tax exemption, for determining the excise duty payable based on aggregate value of Customs duty, the element of SAD should be taken into account.
15. The matter to be placed before the referral bench for further necessary action.
(Pronounced in open court on 26/06/2009) (M. Veeraiyan) Member (Technical) (P.K. Das) Member (Judicial) (Rakesh Kumar) Technical Member PK