Special Additional Duty exemption denied for tax-free sales area, but time-bar, penalty and quantification issues limited recovery.

Imported kerosene sold in a tax-exempt area was held ineligible for Special Additional Duty exemption because "chargeable" means sales tax actually payable on the sale, so the exemption could not be claimed where the sale itself was tax-free. The demand was nevertheless restricted by the five-year customs limitation period, and the earlier period was excluded because an undertaking could not extend statutory time limits. Penalty under section 114A was set aside for want of an enabling basis for this levy, and the duty and consequential interest were remanded for fresh quantification after excluding the time-barred period and exempt duty elements.

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Issues: (i) Whether exemption from Special Additional Duty of Customs was available when the imported kerosene was sold in an area where sales tax was exempted; (ii) whether the demand was barred for the period beyond five years under the customs limitation provision; (iii) whether penalty under section 114A was sustainable; and (iv) whether the duty required re-quantification by excluding exempted duty components.

Issue (i): Whether exemption from Special Additional Duty of Customs was available when the imported kerosene was sold in an area where sales tax was exempted.

Analysis: The exemption notification was intended to neutralise tax disparity between imported and indigenous goods. The expression "chargeable" was construed to mean that tax must be payable on the sale. Where sales tax was exempted on the goods in the area of sale, the importer could not claim the benefit of SAD exemption. The undertaking given at importation also operated against the appellant because the sale in Orissa took place in a tax-exempt situation.

Conclusion: The exemption from Special Additional Duty of Customs was not available, and the duty demand was sustainable in principle.

Issue (ii): Whether the demand was barred for the period beyond five years under the customs limitation provision.

Analysis: The show-cause notice and confirmation of demand were both made under the customs demand provision carrying a five-year outer limit in cases involving suppression or similar grounds. A contractual undertaking under the exemption notification could not enlarge the statutory limitation period. Since the assessee was not put on notice for demand beyond five years, the older period could not be sustained.

Conclusion: The demand for the period beyond five years was barred and had to be excluded.

Issue (iii): Whether penalty under section 114A was sustainable.

Analysis: Penalty for non-payment of SAD could not be imposed under section 114A in the absence of a specific enabling provision making that penal section applicable to this levy. The Tribunal followed the earlier authorities holding that such penalty was not legally tenable for this category of duty.

Conclusion: The penalty under section 114A was set aside.

Issue (iv): Whether the duty required re-quantification by excluding exempted duty components.

Analysis: SAD had to be computed on the correct assessable base. Where basic customs duty and special duty of customs were themselves exempt during the relevant period, those amounts could not be notionally included in the SAD base. The matter therefore required fresh computation on the correct basis.

Conclusion: The duty and consequential interest were remanded for limited re-quantification after excluding the time-barred period and the exempted duty elements.

Final Conclusion: The appeal succeeded only to the extent of exclusion of the time-barred demand, setting aside of penalty, and remand for fresh quantification, while the denial of SAD exemption was upheld in principle.

Ratio Decidendi: For SAD exemption under the relevant notification, "chargeable" means tax actually payable on sale, and where the imported goods are sold in a tax-exempt area the exemption is unavailable; however, statutory limitation and penal consequences remain confined to the enabling provisions and cannot be enlarged by an undertaking.

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