2015 (10) TMI 1058 - AT - Central Excise

Tribunal grants exemption for clinker in cement manufacture to SEZ units under Notification No.67/95-CE

The Tribunal held that the appellants are eligible for the exemption under Notification No.67/95-CE for clinker used in cement manufacture cleared to SEZ ... Exemption Notification No.67/95-CE - captive consumption exemption - exempted goods (as defined for Cenvat purposes) - supplies to SEZ treated as export - Rule 19 Central Excise Rules - export without payment of duty (ARE-1 / under-bond clearance) - obligation under Rule 6 of the Cenvat Credit Rules - exception to proviso - FTZ to SEZ substitution and effect on notifications - Section 26(1)(c) and Section 51 of the SEZ Act - effect of SEZ statutory regime - Section 8 General Clauses Act - reading references to repealed rulesExemption Notification No.67/95-CE - captive consumption exemption - supplies to SEZ treated as export - Rule 19 Central Excise Rules - export without payment of duty (ARE-1 / under-bond clearance) - Clinker manufactured and captively consumed in manufacture of cement cleared to SEZ units/developers without payment of duty is eligible for exemption under Notification No.67/95-CE. - HELD THAT: - Notification No.67/95-CE exempts inputs manufactured and used within the factory in relation to manufacture of final products where both inputs and final products are specified in the table. Clinker is an input and cement is the final product covered by the notification. The appellants cleared cement to SEZ following ARE 1/under bond export procedures under Rule 19 and SEZ Rules; these clearances are without payment of duty but effected by following prescribed export procedure. The Tribunal applied its Principal Bench reasoning in Surya Roshni and subsequent authorities to hold that supplies to SEZ are treated as exports for Cenvat/central excise purposes; where final products are exported (cleared under-bond under Rule 19) the intermediate input captively consumed for such exported final products falls within the scope of Notification No.67/95-CE. The Tribunal further noted that, even if duty were paid on intermediate goods, revenue neutrality (availment of cenvat credit or refund/rebate on duties paid) makes imposition on clinker unsuitable in practice. Accordingly the exemption on clinker was upheld for clearances to SEZ units/developers. [Paras 23, 26, 29, 35]Appeals allowed: clinker captively consumed for manufacture of cement cleared to SEZ without payment of duty is exempt under Notification No.67/95-CE.Exempted goods (as defined for Cenvat purposes) - Section 26(1)(c) and Section 51 of the SEZ Act - effect of SEZ statutory regime - Rule 19 Central Excise Rules - export without payment of duty (ARE-1 / under-bond clearance) - Cement supplied to SEZ units/developers are not 'exempted goods' for purposes of the proviso to Notification No.67/95-CE but are clearances effected as exports without payment of duty under the prescribed procedures. - HELD THAT: - The proviso to Notification No.67/95-CE excludes inputs used for manufacture of final products which are exempt under notifications under section 5A. There is no excise notification rendering cement chargeable to nil or exempt under section 5A; instead cement was cleared to SEZ by following export procedures (ARE 1, bonds) under Rule 19 and the SEZ Rules. The Tribunal relied on the Principal Bench decision in Surya Roshni which interpreted 'exempted goods' in the Cenvat context to mean goods exempted under the Central Excise Act/notifications; supplies to SEZ are to be treated as exports (by virtue of SEZ Act provisions and Board circulars) and therefore not as goods exempted under section 5A notifications. Consequently the proviso's bar does not apply to these clearances. [Paras 24, 25, 26]Cement cleared to SEZ units/developers are export clearances effected without payment of duty and are not 'exempted goods' under the proviso to Notification No.67/95-CE.Obligation under Rule 6 of the Cenvat Credit Rules - exception to proviso - Section 8 General Clauses Act - reading references to repealed rules - Reference in the proviso (clause (vi)) to Rule 6 of the Cenvat Credit Rules, 2001 is to be read so as to operate with the post enactment Cenvat Credit Rules (including 2004); appellants who satisfy the Rule 6 obligations (as applicable) are within the proviso's exception. - HELD THAT: - The proviso carves out an exception where a manufacturer of dutiable and exempted final products has discharged obligations under Rule 6 of the Cenvat Credit Rules as then in force. The Tribunal observed that the 2001 Rules were subsequently amended/replaced by Cenvat Credit Rules, 2004 and, applying Section 8 of the General Clauses Act, references to the earlier Rules must be read as references to the later Rules insofar as the substantive obligation remains. Further, Rule 6(5)/(6) of the later rules cover supplies to SEZ and the obligations could be treated as discharged. Therefore the mere fact that Notification No.67/95-CE mentions the 2001 Rules does not defeat the applicability of clause (vi) for the period in dispute. [Paras 31]Clause (vi) must be read to operate with the subsequently amended Cenvat Credit Rules (including 2004), and its benefit cannot be denied solely because Notification 67/95 refers to the 2001 Rules.FTZ to SEZ substitution and effect on notifications - Exemption Notification No.67/95-CE - proviso clause (i) - References to Free Trade Zones (FTZ) in proviso clause (i) of Notification No.67/95-CE are not to be construed so as to exclude SEZ clearances; FTZs were rendered redundant by SEZ enactment and related amendments and FTZ references operate to include SEZ for the periods in dispute. - HELD THAT: - Revenue argued clause (i) excepted clearances to FTZ only and did not extend to SEZ. The Tribunal noted that after the SEZ Act came into force FTZs were converted/declared as SEZs (Notification No.4/2003-CE and explanatory Notes to Finance Bill) and the legislative and administrative changes replaced FTZ references with SEZ. Given this, and the Board and rule amendments recognizing supplies to SEZ, it would be incongruous to treat FTZ inclusion as excluding SEZ clearances; accordingly clause (i) must be read as covering SEZ for the relevant period. [Paras 32, 33]Clause (i) of the proviso is to be read as covering SEZ clearances in place of FTZ for the relevant period; SEZ is not excluded by virtue of the FTZ wording.Final Conclusion: All assessees' appeals allowed and exemption under Notification No.67/95 CE upheld in respect of clinker captively consumed in manufacture of cement cleared to SEZ units/developers (periods in dispute 2004-2011, including prior to 10.02.2006); Revenue appeals rejected. Appeals disposed accordingly. Issues Involved:1. Eligibility for benefit under Exemption Notification No.67/95-CE for clinker used in the manufacture of cement cleared to SEZ units/developers.2. Whether cement supplied to SEZ units is considered exempted goods.3. Applicability of sub-clause (vi) of the proviso to Notification No.67/95-CE in relation to Cenvat Credit Rules, 2001 or 2004.4. Whether the term FTZ in the proviso to Notification No.67/95-CE includes SEZ.Detailed Analysis:1. Eligibility for Benefit under Exemption Notification No.67/95-CE:The Tribunal examined whether the clinker manufactured and captively consumed for producing cement, which was then cleared to SEZ units/developers without payment of duty, is eligible for the benefit under Notification No.67/95-CE. The notification exempts goods used within the factory for the manufacture of final products listed in its table. Both clinker and cement fall under the specified tariff headings in the notification. The Tribunal found that the appellants had followed the required procedures under Rule 19 of the Central Excise Rules, 2002, and SEZ regulations, thus making them eligible for the exemption.2. Whether Cement Supplied to SEZ Units is Considered Exempted Goods:The Tribunal referred to the definition of 'exempted goods' under Rule 2(d) of the Cenvat Credit Rules, 2004, and concluded that cement supplied to SEZ units does not fall under this category as it is not exempted by any notification under Section 5A of the Central Excise Act. The Tribunal cited the Principal Bench decision in Surya Roshni Ltd., which held that supplies to SEZ are treated as exports and not as exempted goods. Therefore, the clinker used in the manufacture of cement cleared to SEZ units is not subject to excise duty.3. Applicability of Sub-Clause (vi) of the Proviso to Notification No.67/95-CE:The Tribunal addressed whether the reference to Cenvat Credit Rules, 2001, in the proviso to Notification No.67/95-CE should be read as applicable to the Cenvat Credit Rules, 2004. It was determined that the General Clauses Act allows for such interpretation, meaning the obligations under Rule 6 of the Cenvat Credit Rules, 2004, are relevant. The Tribunal found that the appellants had complied with these obligations, thus qualifying for the exemption under Notification No.67/95-CE.4. Whether the Term FTZ Includes SEZ:The Tribunal considered whether the term FTZ (Free Trade Zone) in the proviso to Notification No.67/95-CE includes SEZ (Special Economic Zone). It was noted that after the enactment of the SEZ Act, FTZs were converted into SEZs. The Tribunal referred to the Finance Bill, 2007, which amended the Central Excise Act to replace FTZ with SEZ. Consequently, it was held that the term FTZ in the notification should be interpreted to include SEZ, making the appellants eligible for the exemption.Conclusion:The Tribunal concluded that the appellants are eligible for the exemption under Notification No.67/95-CE for the clinker used in the manufacture of cement cleared to SEZ units/developers. The cement supplied to SEZ units is not considered exempted goods, and the appellants have complied with the relevant Cenvat Credit Rules. The term FTZ in the notification includes SEZ, supporting the appellants' eligibility for the exemption. The Tribunal set aside the impugned orders against the assessees and upheld the orders in favor of the Revenue, allowing the appeals of the assessees and rejecting the appeals of the Revenue.