By TIOL News Service

MUMBAI, JULY 03, 2014: THE claims filed by the appellant seeking refund of SAD under Notification no. 102/2007-Cus dated 14.09.2007 were rejected by the lower authorities on the ground that the endorsement as required in terms of condition 2(b) of the said Notification was not made on the invoice issued for sale of goods.

Condition 2(b) reads thus -

(b) the importer, while issuing the invoice for sale of the said goods, shall specifically indicate in the invoice that in respect of the goods covered therein, no credit of the additional duty of customs levied under sub-section (5) of section 3 of the Customs Tariff Act, 1975 shall be admissible ;

Before the Tribunal, the appellant had submitted that they are traders issuing commercial invoices and they have cleared the imported goods on which they suffered SAD and sold on payment of CST/VAT and as no duty element has been incorporated in the invoice, therefore, taking the benefit of SAD by the buyer does not arise. Further, the SAD is payable by the assessee to safeguard CST/VAT and since the goods have been cleared on payment of CST/VAT, therefore, they are entitled to get the benefit as per the Notification no. 102/07-Cus. Reliance is placed on the decisions of the Tribunal in the case of Equinox Solution Ltd. - 2010-TIOL-1907-CESTAT-MUM & Novo Nordisk India Pvt. Ltd. - 2013-TIOL-1944-CESTAT-MUM .

On the other hand, the Revenue representative relied upon the Division Bench decision in the case of Astra Zeneca Pharma India Ltd. 2013-TIOL-1946-CESTAT-DEL and submitted that the condition of the notification is to be followed strictly and in the said case, the refund claim was denied by this Tribunal.

Observing that there are two contrary decisions and that it would be appropriate to refer the matter to the Larger Bench, the Member (Judicial) directed the Registry accordingly.

The following reference was, therefore, made -

"Whether to avail the benefit of Notification no. 102/07, the condition 2(b) of the Notification is mandatory for compliance being a trader who cleared the goods on the strength of commercial invoices."

We had reported this reference as 2014-TIOL-639-CESTAT-MUM.

The Larger Bench has decided the reference.

The appellant while drawing support from the favourable decisions in Equinox Solution Ltd. - 2010-TIOL-1907-CESTAT-MUM & Novo Nordisk India Pvt. Ltd. - 2013-TIOL-1944-CESTAT-MUM also submitted the following -

+ That the purpose of the notification is to grant relief from double levy, when duty is levied once by way of SAD and again by way of sales tax/VAT;

+ To offset/neutralize this double levy, relief has been provided under notification 102/2007-Cus by way of a refund mechanism;

+ It is not in dispute that the appellant trader, while selling the imported goods has discharged sales tax/VAT liability and, therefore, if he is made to bear the burden of SAD also, it would defeat the very object of the levy;

+ Reliance is placed on the apex Court decision in Mangalore Chemicalsand Fertilizers Ltd. 2002-TIOL-234-SC-CX wherein it is held that an exemption cannot be denied when there is an infraction of a procedural condition of a technical nature.

The Revenue representative drew support from the decision in Astra Zeneca Pharma India Ltd. 2013-TIOL-1946-CESTAT-DEL and also submitted that the notification is an exemption notification and hence has to be construed strictly. It is also submitted that the invoices issued by the Trader-importer is a prescribed document for availing CENVAT credit and, therefore, it cannot be said that no CENVAT credit can be availed on the strength of the same.

The Larger Bench after considering the rival submissions adverted to the genesis of the levy of Special Additional Duty of Customs (SAD) attributable to the Finance Bill, 1998 and the Budget speech of the Finance Minister and observed that the object of the levy was to counterbalance the levy of local taxes (applicable on domestically produced goods) on imported goods so that there is a level playing field between the two. Further, when the imported goods were subsequently sold in the domestic market bearing the burden of local taxes, exemption is provided from SAD so as to neutralize the impact of double levy, and this object ought to be kept in mind while interpreting the notification 102/2007-Cus, the Bench added.

As regards the submission by the A.R. that the invoices issued are prescribed documents and that credit could be availed, the Bench observed that for taking credit the quantum of duty paid needs to be shown in the invoices and the same is required to be shown separately for each type of duties and in respect of a commercial invoice, which shows no details of the duty paid, the question of taking any credit would not arise at all. Consequently, non-declaration of the duty in the invoice issued itself is an affirmation that no credit would be available, the Bench noted.

Applying the ratio of the decisions in Mangalore Chemicalsand Fertilizers Ltd. 2002-TIOL-234-SC-CX and New India Sugar Mills Ltd. [AIR 1963 SC 1207], the Bench concluded that the condition relating to endorsement on the invoice was merely a procedural one and the purpose and object of such an endorsement could be achieved when the duty element itself was not specified in the invoice. Inasmuch as since the object and purpose of the condition is achieved by non-specification of the duty element, the mere non-making of the endorsement could not have undermined the purpose of the exemption, the Bench held.

The Bench, therefore, concurred with the view taken by the Tribunal in the cases of Equinox Solution Ltd. & Novo Nordisk India Pvt. Ltd. and the reference made was answered thus -

"A trader-importer, who paid SAD on the imported goods and who discharged VAT/ST liability on subsequent sale, and who issued commercial invoices without indicating any details of the duty paid, would be entitled to the benefit of exemption under Notfn. 102/2007-Cus, notwithstanding the fact that he made no endorsement that “credit of duty is not admissible” on the commercial invoices, subject to the satisfaction of the other conditions stipulated therein."

The reference, as answered, is returned to the referring Bench.

In passing Disclaimer : Nonetheless the following rider also chugs along in the order - The above decision is rendered only in the facts of the case before us and shall not be interpreted to mean that conditions of an exemption notification are not required to be fulfilled for availing the exemption .

(See 2014-TIOL-1191-CESTAT-MUM-LB)