TMI Blog2009 (6) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri M. Veeraiyan, Member (Technical), Shri P.K. Das, Member (Judicial) and Shri Rakesh Kumar, Member (Technical) 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. [Order per. M. Veeraiyan, Member (Technical)] - 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff 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 Hon'ble 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions 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 sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able; 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. [Hon'ble Supreme Court's 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 repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus 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 appellant's plea that ratio of Hon'ble Supreme Court's 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), Hon'ble 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 du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 stro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 Tribunal's 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 Tribunal's 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 Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt 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 Tribunal's 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 Tribunal's 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted. 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 da ..... X X X X Extracts X X X X X X X X Extracts X X X X
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