Notification 67/95-CE applies to captive clinker used for cement supplied to SEZ under export procedure

Notification No. 67/95-CE was applied to captively consumed clinker used in making cement cleared to SEZ units or developers under bond. Cement supplied to SEZ under the export procedure was treated as exports for SEZ purposes, not as exempted goods under Central Excise law for the proviso to the notification. The reference in the proviso to the Cenvat Credit Rules, 2001 was read as extending to the corresponding Cenvat Credit Rules, 2004 under the General Clauses Act. The reference to Free Trade Zone was also treated as covering SEZ, so the exemption could not be denied on that basis.

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Issues: (i) Whether clinker captively consumed in the manufacture of cement cleared to SEZ units or developers without payment of duty was eligible for exemption under Notification No. 67/95-CE; (ii) whether cement supplied to SEZ units or developers was exempted goods; (iii) whether the reference in the proviso to Notification No. 67/95-CE to the Cenvat Credit Rules, 2001 could be read as applying to the Cenvat Credit Rules, 2004; and (iv) whether the reference to Free Trade Zone in the proviso covered SEZ.

Issue (i): Whether clinker captively consumed in the manufacture of cement cleared to SEZ units or developers without payment of duty was eligible for exemption under Notification No. 67/95-CE.

Analysis: The notification exempts specified inputs used within the factory in or in relation to the manufacture of the final products listed in the table. Clinker and cement were both covered by the table. The bar in the proviso was held inapplicable because the cement cleared to SEZ was not treated as exempted goods under the Central Excise regime merely because it moved under the SEZ and export procedure. The supplies were cleared under bond following the prescribed procedure, and the captively consumed clinker therefore fell within the opening part of the notification and within the relevant exception in the proviso.

Conclusion: Eligible for exemption under Notification No. 67/95-CE.

Issue (ii): Whether cement supplied to SEZ units or developers was exempted goods.

Analysis: Goods supplied to SEZ were held to be exports for the purpose of the SEZ regime and not excisable final products exempted by a notification under the Central Excise law. The Tribunal relied on the statutory scheme of the SEZ Act and the contemporaneous circular clarifying that DTA supplies to SEZ constitute exports. Since the cement was cleared under bond and through ARE-1 procedure, it could not be treated as goods fully exempted from excise duty in the sense required by the proviso to Notification No. 67/95-CE.

Conclusion: Cement supplied to SEZ units or developers was not exempted goods for the purpose of the notification.

Issue (iii): Whether the reference in the proviso to Notification No. 67/95-CE to the Cenvat Credit Rules, 2001 could be read as applying to the Cenvat Credit Rules, 2004.

Analysis: The reference to the earlier rules was treated as a continuing reference and, in any event, the relevant obligation under the successor Cenvat Credit Rules stood satisfied. The Court applied the General Clauses Act to hold that a reference to the repealed or replaced rules would be read as a reference to the corresponding later rules where the legislative context so required.

Conclusion: Yes, the reference was to be read as applicable to the Cenvat Credit Rules, 2004 as well.

Issue (iv): Whether the reference to Free Trade Zone in the proviso covered SEZ.

Analysis: Free Trade Zones had become redundant after the enactment of the SEZ regime, and the statutory and administrative framework treated DTA supplies to SEZ on par with export clearances. The Court held that the omission of an express SEZ reference in the notification could not defeat the benefit where the legal regime had replaced FTZs with SEZs and the clearances were made under the export procedure.

Conclusion: The reference to Free Trade Zone covered SEZ for the purpose of the notification.

Final Conclusion: The demands on clinker were unsustainable, the assessees were entitled to the exemption, and the Revenue's challenge failed.

Ratio Decidendi: Where a captively consumed input is used in the manufacture of a final product cleared to SEZ under the export procedure, the final product is not treated as exempted goods for the purpose of Notification No. 67/95-CE, and the exemption cannot be denied on the basis of the proviso.

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