Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise vs Sundaram Brake Linings Ltd on 3 July, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal No. E/227/12& E/CO/16/2012
[Arising out of Order-in-Appeal No.06/2012 (M-II) dt. 12.1.2012 passed by the Commissioner of Central Excise (Appeals),Chennai]
For approval and signature:
Honble Shri MATHEW JOHN, Technical Member
1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? :
2. Whether it should be released under Rule 27 of the
CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? :
3. Whether the Member wishes to see the fair copy of
the Order? :
4. Whether Order is to be circulated to the Departmental
Authorities? :
Commissioner of Central Excise,
Chennai-II
Appellant
Versus
Sundaram Brake Linings Ltd.
Respondent
Appearance:
Shri D.P. Naidu ADC (AR) Shri Parmod Kumar, JC (AR) For the Appellant Shri P.R. Renganath, Advocate For the Respondent CORAM:
Honble Shri Mathew John, Technical Member Date of hearing : 22.03.2013 Date of pronouncement : 3.7.2013 FINAL ORDER No.__________ Respondents are manufacturers of excisable goods namely, brake linings, clutch facings and disc braking pads. They take benefit of Cenvat credit on inputs used in the manufacture of these excisable products.
2. During Feb 2008 to Jan 2009, they removed certain inputs on which Cenvat credit was taken to another unit of theirs situated in Mahindra Special Economic Zone without reversing the credit taken at the time of receipt of the inputs in the factory. Revenue was of the view that the respondents had contravened provisions of Rule 3 (5) of Cenvat Credit Rules, 2004 (CCR for short), and therefore they were asked to pay an amount equal to the credit availed at the time of receipt of the inputs in the factory along with interest and penalty. On adjudication, an amount of Rs.6,22,500/- along with interest is confirmed against them and a penalty equal to the said amount is imposed under Rule 15 (1) of CCR.
3. On appeal with the Commissioner (Appeal), the Commissioner (Appeal) relied on Circular No. 6/2010-Cus dated 19-03-2010 clarifying that supplies to SEZ units should be treated as exports and set aside the impugned order.
Aggrieved by the order, Revenue has filed this appeal.
4. There is a cross objection filed by the Respondent. The cross objection only pleads for dismissal of the appeal filed by Revenue and no extra relief is prayed for.
5.01. The Ld. A. R. submits that the meaning of the word export is not defined in Central Excise Act or Rules. It is defined in Customs Act, 1962. This meaning has been applied for the purpose of implementing Central Excise Act and Rules all along. There is a separate definition for this word under SEZ Act, 2005. As per this definition, supply of goods from Domestic Tariff Area to units in SEZ is also to be treated as exports. This is a deeming fiction which can apply only to the provisions in SEZ Act. He submits that whether this deeming fiction will have effect in the context of goods supplied to SEZ units was examined by the Gujarat High Court in the case of Essar Steel Limited Vs. UOI-2010 (249) ELT (Guj). In this case, the issue was whether export duty needs to be paid on iron ore supplied from DTA unit to a unit in SEZ since such duty was payable on iron ore exported out of India. The Hon. Court held that the deeming fiction in SEZ Act cannot be applied for the purpose of Customs Act and held that export duty is not payable unless there is export out of India that is to say the definition in Customs Act, 1962, was adopted.
5.02. The Ld A. R for Revenue submits that as per Rule 3 (5) of CCR, the respondents were bound to reverse the credit taken.
5.03. He further submits that going by the natural meaning or the definition given in Customs Act, 1962 export is different from deemed export as defined in SEZ Act. CCR do not recognize deemed export.
5.04. There are certain benefits granted in CCR, like that in Rule 5, Rule 6 (6) in respect of final products exported. These benefits cannot be extended to export of inputs on which credit is taken.
5.05. There is no provision in the CCR, 2004 for supply of inputs, on which credit has been taken, to units in SEZ without reversal of credit on deemed export basis.
5.06. He relied on the decision of the Tribunal in Lakshmi Autoloom Works Ltd Vs. CCE Trichy -2008 (213) ELT 428. In this case, the issue involved was whether an EOU can clear inputs obtained by it and for which credit has been taken, without payment of duty under provisions of Rule 1/95-CE to another EOU. The question was answered in the negative by the Tribunal.
5.07. Similarly in the case of CCE Vs. Tiger Steel Engineering (I) Pvt. Ltd-2010 (259) ELT 375 (Tri) it was held that benefit under Rule 5 of CCR cannot be extended to deemed export to SEZ.
5.08. Further, he relies on the decision of the Hon.Madras High Court in the case of BAPL Industries Ltd. Vs. UOI-2007 (211) ELT 23 (Mad) and relies on the following observation of the Court:
7.?On a reading of the expression export and deemed export with the context with which they are employed in the Policy and with reference to the Export Oriented Unit, a physical export is not a deemed export. Deemed export is defined in Chapter 10 of the policy. The concession granted in favour of the petitioner by legal fiction regarding an activity, which is not an export by itself is a deemed export. It cannot by any stretch of imagination be extended for the local sale to DTA or the local sale made by the petitioner to another 100 percent Export Oriented Unit. The endeavour of the learned counsel for the petitioner to satisfy the Court to accept his contention to the effect even for the export obligation purpose, the deemed export could be taken as an export for consideration and not for the DTA sale. In a fiscal statute of this nature, it is well established legal principle that the policy or any notification has to be interpreted strictly and the wisdom of the respondents cannot be tested unless there is an ambiguity or obscurity in the notification or circular issued by the respondents. The circular is very clear in its terms and clarified the issue that in order to comply the DTA sale, the event or the transaction should be a physical export, and not a deemed export. 5.09. The clarificatory circular No. 06/2010-Cus dated 19-03-2010 relied upon by Commissioner (Appeals) clarifies only that when goods manufactured by a manufacturer is supplied to a unit in SEZ following the procedure notified under Rule 18 and 19 of Central Excise Rules the goods can be treated as exported. The clarification will not apply to clearance of inputs as such.
6. Opposing the submission, the Ld. Counsel for the respondent makes the following submissions:
6.01 The Counsel relies on section 2 (m) of SEZ Act which reads as under:
(m) export means
(i) taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or
(ii) supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or
(iii) supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone;
6.02 He relies on section 26 of SEZ Act which reads as under:
26. (1) Subject to the provisions of sub-section (2), every Developer and the entrepreneur shall be entitled to the following exemptions, drawbacks and concessions, namely: -
(a) exemption from any duty of customs, under the Customs Act, 1962 or the Custom Tariff Act, 1975 or any other law for the time being in force, on goods imported into, or service provided in, a Special Economic Zone or a Unit, to carry on the authorised operations by the Developer or entrepreneur;
(b) exemption from any duty of customs, under the Customs Act, 1962 or the Customs Tariff Act, 1975 or any other law for the time being in force, on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside India:
(c) exemption from any duty of excise, under the Central Excise Act, 1944 or the Central Excise Tariff Act, 1985 or any other law for the time being in force, on goods brought from Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the authorised operations by the Developer or entrepreneur;
(d) drawback or such other benefits as may be admissible from time to time on goods brought or services provided from the Domestic Tariff Area into a Special Economic Zone or Unit or services provided in a Special Economic Zone or Unit by the service providers located outside India to carry on the authorised operations by the Developer or entrepreneur;
(e) exemption from service tax under Chapter-V of the Finance Act, 1994 on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone;
(f) exemption from the securities transaction tax leviable under section 98 of the Finance (No. 2) Act, 2004 in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre;
(g) exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 if such goods are meant to carry on the authorised operations by the Developer or entrepreneur.
(2) The Central Government may prescribe the manner in which, and the terms and conditions subject to which, the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur under sub-section (1).
6.03. Further, he relies on section 51 of SEZ Act which reads as under:
51. (1) The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. 6.04. Further, he requests the Tribunal to take note of the arguments as given in para 20 of the order of the High Court in the case of Essar Steel which reads as under:
20.?The provisions of Section 53 of the SEZ Act, 2005 do not provide that the SEZ is located outside India. The said provision refers to the expression customs territory of India, which expression, though not defined in the SEZ Act or the Customs Act, finds reference in the GATT Agreement. The said Section does not state that a SEZ is outside India. The Respondents have committed a gross error in equating the expression Customs territory, with India. It is further contended that SEZ is located within India is evident from Section 1(ii) of the SEZ Act, which clearly states that the same extends to the whole of India. There is no provision in the SEZ Act, 2005 for levy of export duty on supplies made by a DTA unit to the SEZ. The legislative intent of not levying export duty on supplies from DTA to SEZ is manifest from the difference in the charging provisions i.e. Section 76F(a) of the Customs Act, 1962 that existed in relation to SEZ scheme, prior to the enactment of SEZ Act, 2005. Section 76F(1) provided for levy of export duty on supplies from DTA to SEZ and also provided or levy of import duty on removal from SEZ to DTA. Section 76F(1) was rescinded and on the SEZ Act, 2005, coming into force, the only levy provided was in Section 30, which required payment of an amount equal to import duty, on goods removed from the SEZ to the DTA. The provision for levy of export duty on removal from DTA to SEZ was not incorporated in the SEZ Act, 2005. This manifest intention of the legislature of not levying export duty on supplies made from DTA to SEZ is now sought to be frustrated by the respondents. It is also contended that the levy of export duty on supplies made to a SEZ Unit is clearly contrary to Rule 27 of the SEZ Rules, 2006, which entitles a SEZ Unit to procure goods from the DTA, without payment of duty, taxes or cess. It is further contended that the statement of objects and reasons which were presented before the Parliament, when the SEZ Act was introduced clearly states that the objective of creating a Special Economic Zone was to make available goods and services free of taxes and duties for promoting export-led growth. It is in consonance with this stated objective that the SEZ Act does not provide for any levy on export of goods or movement of goods from Domestic Tariff Area to SEZ and the SEZ Rules clarify that all supplies to a SEZ Unit will be without payment of duty, taxes or cess.
6.05. Then, he relies on the ruling of the Hon Court in para 41.2.9 as under:
41.2.9?Rule 27 permits a Unit or Developer to import or procure from the Domestic Tariff Area all types of goods, without payment of duty or procure from the Domestic Tariff Area such goods after availing export entitlements. This means that the export entitlements available on account of the export of goods from the Domestic Tariff Area to the Special Economic Zone are available either to the Domestic Tariff Area supplier or the Special Economic Zone Unit/Developer at their option. Therefore, duty drawback or DEPB and/or other export benefits would be available to either party at their option. The sweeping exemption granted under this provision renders the contention of the Department regarding liability of the goods to levy of Export Duty, academic since this provision exempts the goods brought in by the Special Economic Zone Unit from all levies and duties. Since the duty is leviable on the goods, it would be irrational to contend that the export from the Domestic Tariff Area to the Special Economic Zone should be taxed while the inward movement of the goods from the Domestic Tariff Area to the Special Economic Zone, would be exempt. 6.06. His submission is that while Revenue is relying on the above judgement in Essar Steel it is ignoring the beneficial part of the ruling as far as respondent is concerned.
6.07. The whole purpose of SEZ Act was to make available raw materials without payment of duty to developer and units in SEZ. Revenue was frustrating this objective while demanding export duty when goods were supplied from DTA to units in SEZ. Similarly, they are trying to frustrate the objective of SEZ Act by denying a benefit of supply of materials without duty incidence to units in SEZ.
6.08. Further, he submits that the goods manufactured in SEZ unit are exported and therefore the respondent could remove without payment of duty under Rule 19(2) of Central Excise Rules,2002 which allows supply of materials without payment of duty for manufacturing export goods. This rule reads as under:
(2)?Any material may be removed without payment of duty from a factory of the producer or the manufacturer or the warehouse or any other premises, for use in the manufacture or processing of goods which are exported, as may be approved by the Commissioner. His argument is that this rule allows removal of any goods from any premises and hence there is no reason to deny the benefit for removal of inputs on which Cenvat credit has been taken.
6.09. He further submits that the decision of the Tribunal in CCE Vs. Tiger Steel Engineering (I) Pvt Ltd sought to be relied upon by the department has been stayed by Bombay High Court as reported at 2011 (263) ELT A 104 (Bom). But, it is observed that this stay is granted after observing that refund involved was already granted. The Court only wanted to stay the recovery of refund granted. There is no view taken by the Court on the merits of the issue.
6.10. He also submits that the order of the larger bench of the Tribunal in the case of Lakshmi Automatic Loom Works Ltd Vs. CCE has been stayed by Madras High Court vide order dated 12-01-2009 in CMA No. 75/2009. In this case stay is granted after the Court had taken note of substantial payments against the demands confirmed by the Tribunal.
6.11 He also submits that the respondent would have been eligible for rebate under Rule 18 of Central Excise Rules 2002 as clarified in circular No.06/2010-Cus dated 19-03-2010 and hence the respondent has not got any unauthorized benefit.
7. I have considered arguments on both sides. I have gone through the circulars 29/2006-Cus dated 27-12-2006 and Circular 06/2010-Cus dated 19-03-2010 which clearly demonstrate the intention of the government to treat supplies of goods to SEZs and units in SEZs as exports for the purpose of granting relief from excise duty on goods supplied from DTA units. The Gujarat High Court in the case of Essar Steel (supra), even while deciding that for the purpose of imposing export duty, supplies to SEZ units cannot be treated as export, in para 41.2.9 has affirmed that benefit of refund, drawback, rebate etc on goods supplied to units in SEZ cannot be denied. So, I am in agreement with the line of argument of the respondent that supplies to units in SEZ units without payment of excise duty are in conformity with the policies of the government announced from time to time and also authorized by the provisions of SEZ Act. The decision in the case of Essar Steel (supra) does not alter the position though it negated levy of export duty. Such levy was against the provisions of Customs Act, 1962 and also SEZ Act 2005 as is lucidly explained by the Hon. High Court in its judgement. This view is further affirmed by the decision of the said High Court in CCE Vs. NBM Industries -2012 (276) ELT 9 (Guj). It is also noted that the decision of Hon. Madras High Court in the case of BAPL Industries was in respect of certain benefits under Exim Policy and not directly on the issue whether excisable goods supplied to SEZ units can be considered to be exported and benefits under Rule 18 and 19 of Central Excise Rules granted, in which matter there is clearly stated policy of government available through circulars issued by CBEC.
8. Now, the facts of this case is that a unit in DTA was obtaining duty paid goods, taking Cenvat credit of duty paid on such goods and was removing it without reversal of credit to another unit in SEZ, thus stripping the Cenvat credit without following any procedure for export of goods. The question is whether such an operation is authorized notwithstanding Rule 3 (5) of CCR. For the purpose of accounting the goods on which Cenvat credit is taken, CCR has to be considered as a complete code in itself and since the said rules do not envisage export of inputs after taking credit, I am of the view that Rule 3 (5) has to be necessarily complied with. Such an approach only is consistent with the decision of the Larger Bench of Tribunal in Lakhmi Automatic Loom Works (Ltd).In the said decision it was held that inputs cannot be removed from one EOU to another without payment of duty considering it as deemed export. This decision was given with reference to Rule 57F of Central Excise Rule 1944though Rule 57 F(2) had provisions for export of inputs under bond. Present CCR do not even have such provisions.
9. Rule 6 (6) relied upon by the respondent deals with removal of excisable goods without payment of duty. Payment of duty arises in the case of final products and not inputs cleared as such. So this rule is not intended to deal with the issue at hand. So is the decision in the case of Sujana Metal products Ltd Vs. CCE 2011 (273) ELT 112 (Tri-Del) relied upon by respondent.
10. Rule 19 (2) of the Central Excise rules 2002 relied upon by the respondent is applicable only subject to approval by the Commissioner. No such permission has been taken in this case. Rule 18 and 19 would apply only when goods manufactured in a factory are exported and not when inputs on which credit is taken are exported. Further Circular No. 29/2006-Cus., dated 27-12-2006 and Circular 06/2010-Cus dated 19-03-2010 refer to procedures notified under Rule 18 and Rule 19 of Central Excise Rules, 2002 to be followed for exporting goods under claim for rebate or bond. Section 26(1) of SEZ Act also refers to procedures prescribed under section 26(2) of the said Act.There is nothing stated in proceedings before the lower authority about the respondent having followed such procedures. It would appear that inputs were removed under invoices addressed to a unit in SEZ.
11. In view of discussions above, I see merit in the appeal filed by Revenue. So I order the reversal of the order of Commissioner (Appeal) in regard to setting aside the demand under Rule 3 (5) of CCR and confirm the demand for Rs. 6,22,500/- along with appropriate interest. However, this is matter of interpretation of rules and I am of the view that no intention on the part of the respondent to evade payment of duty is established. So, I do not find it necessary to restore the penalty adjudged by the adjudicating authority.
12. Appeal filed by Revenue is partially allowed. Cross objection by Respondent is disposed of.
(Pronounced in open court on 3.7.2013) (MATHEW JOHN) TECHNICAL MEMBER gs 14