SEZ Act 'export' definition overrides Customs; DTA-to-SEZ supplies treated as exports; Rule 6 provisions inapplicable; Rule 6(6) covers exempted goods.

CESTAT, Bangalore held that the SEZ Act's definition of "export" prevails over the Customs Act, so supplies from DTA units to SEZ units are to be treated as exports. Consequently, the export provisions of Rule 6 of the Cenvat Credit Rules do not apply to such supplies. However, the exception in Rule 6(6) of the Cenvat Credit Rules, 2004 applies to supplies of exempted goods both to SEZ units and to SEZ developers/promoters.

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Issues Involved:
1. Whether supplies to SEZ developers/promoters should be treated as "exports."
2. Applicability of Rule 6 of the Cenvat Credit Rules, 2002/2004 to supplies made to SEZ developers/promoters.
3. Retrospective application of Notification No. 50/2008-C.E. (N.T.), dated 31-12-2008.
4. Invocation of extended period of limitation and imposition of penalties.

Detailed Analysis:

1. Whether supplies to SEZ developers/promoters should be treated as "exports":

The primary contention revolves around whether supplies made to SEZ developers/promoters qualify as "exports." The Department argued that since the goods did not leave India's territory, they do not meet the Customs Act's definition of export, which requires goods to be taken out of India. On the contrary, the assessees argued that under the SEZ Act, 2005, and previous SEZ provisions under Chapter XA of the Customs Act, supplies to SEZ are treated as exports. The Tribunal noted that the term "export" is not defined in the Central Excise Act, Rules, or Cenvat Credit Rules. However, the SEZ Act defines "export" to include supplying goods from the Domestic Tariff Area (DTA) to an SEZ unit or developer. Given the overriding effect of Section 51 of the SEZ Act, the Tribunal concluded that supplies to SEZ developers/promoters should be treated as exports.

2. Applicability of Rule 6 of the Cenvat Credit Rules, 2002/2004 to supplies made to SEZ developers/promoters:

Rule 6 of the Cenvat Credit Rules mandates maintaining separate accounts for inputs used in manufacturing exempted goods. The Department argued that since supplies to SEZ developers/promoters were exempted, Rule 6 applied. However, the Tribunal noted that Rule 6(5) of CCR, 2002, and Rule 6(6) of CCR, 2004, provide exceptions for goods cleared to SEZ units. The Tribunal concluded that if supplies to SEZ are treated as exports, the provisions of Rule 6 do not apply. The Tribunal further noted that the amendment to Rule 6(6) of CCR, 2004, which included supplies to SEZ developers, was by way of substitution, indicating the consistent policy of the Government to extend benefits to SEZ developers.

3. Retrospective application of Notification No. 50/2008-C.E. (N.T.), dated 31-12-2008:

The Department contended that the amendment to Rule 6(6) of CCR, 2004, effective from 31-12-2008, was prospective. The assessees argued that the amendment was clarificatory and should be applied retrospectively. The Tribunal referred to Supreme Court judgments in WPIL Ltd. and Indian Tobacco Association, which held that amendments by substitution, especially when clarificatory, should be given retrospective effect. The Tribunal concluded that the amendment to Rule 6(6) of CCR, 2004, should apply retrospectively from 10-9-2004, when CCR, 2004, came into existence.

4. Invocation of extended period of limitation and imposition of penalties:

Given the interpretative nature of the issues involved, the Tribunal held that no charge of suppression could be sustained against the assessees. Consequently, the invocation of the extended period of limitation and the imposition of penalties were deemed unwarranted.

Conclusion:

The Tribunal ruled that:
- Supplies to SEZ developers/promoters are to be treated as exports.
- Rule 6 of CCR, 2002/2004, does not apply to such supplies.
- The amendment to Rule 6(6) of CCR, 2004, by Notification No. 50/2008-C.E. (N.T.) is retrospective from 10-9-2004.
- No extended period of limitation or penalties can be invoked.

The appeals of the assessees were allowed with consequential relief, and the appeals of the Department were rejected.

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