Special additional duty on EOU inter-unit transfers set aside where no State tax exemption notification existed.

Special additional duty on inter-unit transfers from a 100% EOU to a sister unit in the DTA was held not payable where no State Government notification exempting the goods from sales tax, VAT or CST existed. The Tribunal applied Notification No. 23/2003-CE and held that the relevant condition for denying the benefit is the existence of a State exemption notification; a mere inter-unit transfer is not, by itself, a sales transaction attracting sales tax. As no such exemption notification was shown, the condition for denial was not satisfied, and the duty demand was set aside in favour of the assessee.

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Issues: Whether special additional duty was payable on inter-unit transfers made by a 100% EOU to its sister unit in the DTA in the absence of a State Government notification exempting the goods from sales tax, VAT or CST.

Analysis: The dispute turned on Notification No. 23/2003-CE, under which the relevant condition for availment of benefit on clearance into DTA was that the goods should not be exempted by the State Government from payment of sales tax or VAT. The Tribunal followed its earlier view that an inter-unit transfer is not, by itself, a sales transaction attracting sales tax, but the absence of a State exemption notification does not mean that the goods are exempted from sales tax. Since no notification granting such exemption existed, the condition for denial of the benefit was not met.

Conclusion: The demand of special additional duty on the inter-unit transfers was set aside and the appeals were allowed, in favour of the assessee.

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