2011 (2) TMI 624 - AT - Central Excise

SEZ Supplies Treated as Deemed Exports: Impact on Cenvat Credit Rule

The Appellate Tribunal CESTAT, Ahmedabad held that supplies to Special Economic Zone (SEZ) developers should be treated as deemed exports, rendering the ... Deemed exports - Cenvat Credit reversal by way of 10% under Rule 6(3) of the Cenvat Credit Rules, 2004 - clearances to Special Economic Zone developers - Board's circular treating supplies to SEZ developers as deemed exports - exemption from duty for clearances under Section 25(c) of the Special Economic Zones Act, 2005Deemed exports - Cenvat Credit reversal by way of 10% under Rule 6(3) of the Cenvat Credit Rules, 2004 - clearances to Special Economic Zone developers - Board's circular treating supplies to SEZ developers as deemed exports - Supplies of finished goods by the appellant to developers of the Special Economic Zone are to be treated as deemed exports and do not attract the 10% reversal under Rule 6(3) of the Cenvat Credit Rules, 2004. - HELD THAT: - The Tribunal found that the appellant cleared furniture to SEZ developers during March 2008 to August 2008 following the UT-1 procedure under Rule 19 of the Central Excise Rules read with Rule 30 of the SEZ Rules and relying on the exemption under Section 25(c) of the SEZ Act. Revenue contended Rule 6(3) required a 10% reversal where separate accounts were not maintained and that sub-rule (6) did not except clearances to SEZ developers. The Tribunal, however, followed earlier decisions including Bhoruka Aluminium Ltd. v. CCE, Cus. & S.T. Mysore and CCE Hyderabad v. Vayhan Air Controls P. Ltd. , and held that the Board's circular No. 29/06-Cus., dated 27-12-2006 treats supplies to SEZ developers as deemed exports. Applying that clarification, such supplies cannot be treated as dutiable clearances attracting the 10% reversal under Rule 6(3), and the demand founded on that provision is unsustainable.Demand, penalty and interest based on the 10% reversal under Rule 6(3) are set aside and the appeal is allowed.Final Conclusion: The Tribunal allowed the appeal, holding that clearances to SEZ developers are deemed exports in light of the Board's circular and therefore the 10% Cenvat reversal under Rule 6(3) is not applicable; the impugned demand, equal penalty and interest were set aside. Issues:1. Applicability of Rule 6(3) of the Cenvat Credit Rules, 2004 on supplies to Special Economic Zones (SEZ).2. Treatment of supplies to SEZ developers as deemed exports.3. Validity of demand for payment under Rule 6(3) of the Cenvat Credit Rules.Analysis:1. The appellant, engaged in furniture manufacturing availing cenvat credit, cleared finished goods to SEZ developers without duty payment. The Revenue contended that Rule 6(3) of the Cenvat Credit Rules requires payment of 10% of exempted final product value if no separate accounts are maintained. The issue revolved around the applicability of this rule to supplies to SEZ developers.2. The Tribunal referred to precedents like Bhoruka Aluminium Ltd. and CCE Hyderabad v. Vayhan Air Controls P. Ltd., noting the Board's circular treating supplies to SEZ developers as deemed exports. If considered exports, no duty could be demanded. This raised the question of whether the supplies to SEZ developers should indeed be treated as deemed exports, impacting the applicability of Rule 6(3) of the Cenvat Credit Rules.3. A show cause notice demanded payment under Rule 6(3) of the Cenvat Credit Rules, which was upheld by the adjudicating authority and Commissioner (Appeals). However, the Tribunal, relying on the Board's circular and precedents, held that the supplies to SEZ developers should be treated as deemed exports. Consequently, the requirement to pay 10% of exempted final product value under Rule 6(3) was deemed inapplicable, leading to the setting aside of the impugned order and granting relief to the appellant.This detailed analysis of the judgment from the Appellate Tribunal CESTAT, Ahmedabad highlights the key issues surrounding the applicability of Rule 6(3) of the Cenvat Credit Rules to supplies to SEZ developers, the treatment of such supplies as deemed exports, and the ultimate decision in favor of the appellant based on legal interpretations and precedents.