2025 (5) TMI 1847 - AT - Customs

Wrongly availed the exemption from Special Additional Duty (SAD) on import of the Raw Jute - terms of clause 2 of Notification 21/12-Cus - payment of VAT as per section 21 read with item no. 30 Schedule A of the West Bengal VAT Act 2003 - liable to pay the SAD along with appropriate interest and penalty under 114A of the Customs Act 1962 - HELD THAT - From the conditions of Notification 21/2012 reproduced above we observe that if the appellant-importer has availed the exemption of BCD on the strength of SAFTA (Certificate of Origin) issued by the Export Promotion Bureau of Exporting Country then the exemption of SAD (4% CVD) is not admissible on such import in terms of clause 2 Notification 21/12-Cus dated 17.03.2012. However we observe that the said conditions does not deal with a situation where the SAD leviable itself is NIL . We are of the view that the above said condition is applicable only in case of a situation where there is SAD payable by the appellant under the VAT Act. We observe that as per Section 3(5) of the said Act the Central Government levies additional duty to counter-balance the sales tax value added tax local tax payable on the said goods. Thus we observe that SAD is payable at the time of importation if VAT is payable on the said goods domestically as it is levied to counter-balance the VAT payable on such goods. However when there is no Sales Tax Value Added Tax Local Tax on the domestic sales on such goods there can be no SAD payable on such items when imported as there is no need to counterbalance the VAT payable on such goods. In the present case we observe that the item Raw Jute imported by the appellant has no VAT payable on it. Thus we hold that no Additional Duty of Customs is leviable on the said goods as there was no VAT payable on the Raw Jute as per section 21 read with item no. 30 Schedule A of the West Bengal VAT Act 2003. Thus by following the principle laid down by the Hon ble Apex Court in Re Hyderabad Industries 1999 (5) TMI 29 - SUPREME COURT we hold that the appellant is not liable to pay SAD as there was no VAT payable on the Raw Jute as per section 21 read with item no. 30 Schedule A of the West Bengal VAT Act 2003. Accordingly we set aside the demand of SAD confirmed in the impugned order. As the demand itself is not sustainable the question of demanding interest or imposing penalty does not arise. Hence we set aside the impugned order and allow the appeal filed by the appellant.

Summary

The core legal questions considered in this case are:

1. Whether Special Additional Duty (SAD) under Section 3 of the Customs Tariff Act, 1975, is leviable on the import of 'Raw Jute' when such goods are exempt from Value Added Tax (VAT) under the West Bengal VAT Act, 2003.

2. Whether the exemption from SAD is barred by Clause 2 of Notification No. 21/12-Cus dated 17.03.2012, which excludes SAD exemption if Basic Customs Duty (BCD) exemption is claimed based on the country of origin certificate (SAFTA certificate).

3. Whether the appellant has wrongly availed exemption from SAD by relying on the exemption of BCD under SAFTA, thereby attracting interest and penalty under Section 114A of the Customs Act, 1962.

Issue-wise Detailed Analysis

Issue 1: Levy of SAD on 'Raw Jute' when VAT is exempted on the goods

Relevant legal framework and precedents: SAD is imposed under Section 3 of the Customs Tariff Act, 1975, which allows the Central Government to levy additional duty to counterbalance sales tax, VAT, or local tax payable on goods domestically. Section 3(5) specifically mandates that SAD is leviable only when such domestic tax is payable. The West Bengal VAT Act, 2003 exempts 'Raw Jute' from VAT as per Section 21 read with item no. 30, Schedule A. The Supreme Court in Re: Ahujasons Shawl Wale Private Ltd (2015) 14 SCC 623, following the Constitution Bench decision in Re: Hyderabad Industries (1999) 108 ELT 321 (SC), held that additional duty (countervailing duty) is intended to protect domestic market from unhealthy competition and is not leviable when there is no excise or VAT payable domestically.

Court's interpretation and reasoning: The Tribunal observed that since 'Raw Jute' is exempt from VAT under the West Bengal VAT Act, there is no domestic tax to counterbalance. Thus, SAD cannot be levied on such goods at import. The Tribunal relied on the Supreme Court's principle that the purpose of SAD is to offset domestic taxes, and if none exist, the levy is not justified.

Application of law to facts: The appellant imported 'Raw Jute' which is VAT exempt. Therefore, no SAD is payable on importation as there is no domestic VAT to counterbalance. The Tribunal held the demand of SAD unsustainable on this ground.

Conclusions: SAD is not leviable on 'Raw Jute' imports exempt from VAT, as the statutory condition for SAD levy under Section 3(5) is absent.

Issue 2: Applicability of Clause 2 of Notification 21/12-Cus dated 17.03.2012 regarding exemption denial when BCD exemption is claimed based on country of origin certificate

Relevant legal framework: Notification 21/12-Cus grants exemption from SAD for goods exempt from customs duty or on which customs duty is nil. Clause 2 states that this exemption does not apply if exemption from customs duty is claimed based on the country of origin of goods (e.g., under SAFTA).

Court's interpretation and reasoning: The Tribunal noted that Clause 2 is triggered when SAD is otherwise payable and exemption is denied because BCD exemption is claimed on origin grounds. However, the Tribunal found that the clause does not contemplate a situation where SAD itself is nil due to absence of VAT. The condition in Clause 2 applies only where SAD is payable but exemption is denied due to origin-based BCD exemption.

Application of law to facts: The appellant claimed BCD exemption under SAFTA. The Revenue contended this barred SAD exemption under Clause 2. The Tribunal rejected this argument, holding that since SAD itself is not leviable (due to no VAT), Clause 2 cannot be invoked to deny exemption.

Treatment of competing arguments: The Revenue's argument that Clause 2 of Notification 21/12-Cus prevents SAD exemption when BCD exemption is claimed was considered but found inapplicable because the fundamental condition for SAD levy (presence of VAT) was absent.

Conclusions: Clause 2 of Notification 21/12-Cus does not apply where SAD is not leviable due to absence of domestic VAT. Hence, the appellant is entitled to exemption from SAD despite claiming BCD exemption under SAFTA.

Issue 3: Liability to pay interest and penalty under Section 114A of the Customs Act, 1962 for non-payment of SAD

Relevant legal framework: Section 114A of the Customs Act prescribes interest and penalty for wrongful availment of exemption or non-payment of duty.

Court's interpretation and reasoning: Since the Tribunal held that the demand of SAD itself is not sustainable, the foundation for interest and penalty does not exist. Wrongful availment presupposes that duty was payable but not paid. Here, no SAD was payable.

Application of law to facts: The appellant's non-payment of SAD cannot be considered wrongful as the duty was not leviable. Therefore, interest and penalty cannot be imposed.

Conclusions: Interest and penalty demands are set aside along with the SAD demand.

Significant Holdings

"The purpose of additional duty, also known as countervailing duty under section 3, is to protect the domestic market from unhealthy competition. Once there is no excise duty on such goods produced domestically the question of levying additional duty in the form of giving such a protection does not arise at all."

The Tribunal held that where goods are exempt from VAT domestically, no SAD is leviable on their importation under Section 3(5) of the Customs Tariff Act, 1975.

Clause 2 of Notification 21/12-Cus dated 17.03.2012, which denies SAD exemption when BCD exemption is claimed on the basis of country of origin certificate, applies only where SAD is otherwise payable. It does not apply where SAD is nil due to absence of VAT.

Since the demand of SAD is unsustainable, the imposition of interest and penalty under Section 114A of the Customs Act is also unwarranted.

Accordingly, the Tribunal set aside the demand of SAD along with interest and penalty and allowed the appeal.