SEZ - Goods cleared in DTA - Entitled for exemption from CVD notwithstanding bar u/s 5A of CEA, 1944 - Omission to omit reference to SEZ in Sec 5A is legislative oversight: HC
By TIOL News Service
AHMEDABAD, DEC 04, 2014 : THE Petitioner is a SEZ unit and is before High Court challenging an order passed by the Specified officer, denying them the benefit of exemption from CVD on goods cleared in DTA. It is the case of the Petitioners that like goods manufactured outside SEZ are exempted from payment of Central Excise duty under a Notification issued under Section 5A. It is the case of department that SEZ units are specifically excluded from the purview of Section 5A and hence the Petitioners are not entitled for the exemption.
Actually, with a separate SEZ Act coming into effect, Section 3 of the Central Excise Act, 1944 was amended in 2007 to omit SEZs from levy of duty under Section 3, but simultaneous amendment was not made to Section 5A of the Central Excise Act, 1944 and the Section continues to specify that the exemption under Section 5A is not applicable to the SEZs.
The Petitioner contended that that setting up of SEZ, the control of the units situated within such SEZs, and all related issues are now governed by the Special Economic Zones Act, 2005. Corresponding amendments have been made in Section 3 of the Central Excise Act exempting SEZ units from payment of central excise duty. Merely because no amendment is made in Section 5A of the Central Excise Act, a liability which does not arise out of a charging provision cannot be fastened.
After hearing both sides, the High Court held:
Section 30 of the SEZ Act only imposes a condition for a SEZ unit to clear the goods to a DTA. Such condition is payment of authorized duties including CVD as provided in the Customs Tariff Act as applicable and leviable on such goods when imported. By reference, therefore, the charging Section 3(1) of the Customs Tariff Act and such CVD would be leviable as if the goods cleared by SEZ unit to the DTA are in the nature of imports. If, therefore, by virtue of an exemption notification the whole of the excise duty payable as prescribed in the Central Excise Tariff Act is exempt for the local manufacturers, no CVD would be payable under Section 3(1) of the Customs Tariff Act on import of such goods. Section 3(1) uses the expression 'excise duty for the time being leviable on a like article if produced or manufactured in India'. The explanation explains the expression 'excise duty for the time being leviable on a like article if produced or manufactured in India' as to include the duty, which would be leviable on class or description of articles to which the imported article belongs, if such article is not produced or manufactured in India. However, the central concept remains the same, namely, the importer would have to pay CVD equivalent of the excise duty payable on a like article if produced or manufactured in India. In the present case, by virtue of the exemption notifications on a like article produced or manufactured in India there is no duty of excise payable or leviable is leviable. In other words, excise duty levied on such articles manufactured in India being nil, the CVD also, in terms of Section 3(1) of the Customs Tariff Act, would be nil.
With the framing of the Special Economic Zones Act, different existing SEZ units were brought within the fold of the Special Economic Zones under the provisions of sub-section (4) of section 3 and sub-section (1) of section 4 contained in the Special Economic Zones Act and even the new units would be governed by such statutory provisions. Matching amendments were made in the Central Excise Act, 1944. Section 3, for example, which contained clauses (a) and (b) both, now contain an exclusion clause for goods produced or manufactured in Special Economic Zones from payment of CENVAT. Section 5A, however, continued without corresponding change. In the proviso in clause (1), the reference to 'or a Special Economic Zone' continued. It appears that the same was to be omitted from a date to be notified. Such notification has not been issued. Today, therefore, Section 5A of the Central Excise Act, 1944 continues to contain a reference to a Special Economic Zone in the proviso providing that any exemption granted by a notification under Section 5A would not apply to any goods produced or manufactured in Special Economic Zone and brought to any other place in India. This omission to omit the reference to Special Economic Zone from said proviso appears to be a legislative oversight.
Accordingly, the High Court has allowed the Petition.
(See 2014-TIOL-2123-HC-AHM-CUS)
