Tribunal rules SAD not applicable for goods transfer within company

The Tribunal held that Special Additional Duty (SAD) under Section 3(5) of the Customs Tariff Act, 1975 was not applicable to goods transferred within the company to the Service Department from the 100% Export-Oriented Unit (EOU) in the Domestic Tariff Area (DTA). As there was no actual sale involved and the goods were not exempt from Sales Tax/VAT, SAD was deemed inapplicable. The Tribunal referenced a prior decision supporting this interpretation, ultimately allowing the appeals, overturning the impugned order, and granting consequential benefits to the appellants.

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Issues:
Leviability of SAD under Section 3(5) of the Customs Tariff Act, 1975 in respect of goods cleared to 100% EOU in DTA.

Analysis:
The judgment revolves around the issue of the leviability of Special Additional Duty (SAD) under Section 3(5) of the Customs Tariff Act, 1975 concerning goods cleared to a 100% Export-Oriented Unit (EOU) in the Domestic Tariff Area (DTA). The appellants, who manufacture parts of Data Projector, PU, Interface, Populated PCB, etc., are the manufacturers in question. They had appealed against the demand for SAD on goods cleared to the Service Division of the appellants. The appellants had cleared goods to the Service Division for catering Annual Maintenance Contracts (AMC) to customers. The audit party of the Department had contended that SAD was payable on the goods cleared to the Service Division. The dispute arose as the appellants argued that they were not liable to pay SAD since applicable Sales Tax/VAT had been discharged before supplying goods to end customers from the non-bonded area within their premises. A show-cause notice (SCN) was issued, demanding duty along with penalties, which was contested by the appellants. The adjudication reduced the duty amount but confirmed it along with penalties. Additionally, penalties were imposed on specific individuals associated with the appellants.

The appellants contended that the levy of SAD under Section 3(5) of the Customs Tariff Act, 1975 was not applicable as the goods cleared in DTA were not exempt from Sales Tax/VAT. They argued that since there was no sale involved, as the goods were transferred within the company to the Service Department, SAD should not be payable. The appellants cited a previous decision by a coordinate Bench of the Tribunal in their favor, emphasizing that inter-unit transfers did not attract Sales Tax/VAT. They highlighted that for the benefit of Notification No. 23/2003-CE, the only condition was that the goods were not exempted from Sales Tax/VAT by the State Government. The Revenue, represented by the Assistant Commissioner, relied on the impugned order.

The Tribunal, after considering the arguments presented, held that SAD, which is in lieu of Sales Tax, was not applicable in the circumstances of the case where there was no actual sale involved. The transfer of goods was within the company to the Service Department from the 100% EOU. The Tribunal referred to a similar view taken by another coordinate Bench in a previous case. Consequently, the appeals were allowed, the impugned order was set aside, and the appellants were granted consequential benefits.

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