Special Additional Duty exemption depends on actual State tax exemption, not mere stock transfer to a DTA unit.

A 100% EOU clearing goods to its own DTA unit on stock transfer basis remained entitled to exemption from Special Additional Duty under Notification No. 23/2003-CE because the goods were not exempted by any State Government notification or order from sales tax or VAT. Mere non-payment of sales tax on an inter-unit transfer was not treated as a State-granted exemption, and the fact that the same goods would attract tax if sold to independent DTA buyers did not alter the position. Applying the Micro Inks principle, the exemption was available and the SAD demand was unsustainable.

---

---

Issues: Whether a 100% Export Oriented Unit clearing goods to its own DTA unit on stock transfer basis was entitled to exemption from Special Additional Duty under Notification No. 23/2003-CE when the goods were not exempted by any State Government notification from sales tax or VAT.

Analysis: The benefit under the notification turns on whether the goods are exempted by the State Government from sales tax or VAT. A mere stock transfer, by itself, does not amount to an exemption granted by the State Government. Where there is no notification or order exempting the goods from sales tax or VAT, and the same goods are otherwise subjected to sales tax when sold to independent DTA buyers, the condition for denial of exemption is not satisfied. The earlier decision in Micro Inks was applied to hold that non-payment of sales tax on inter-unit transfer cannot be equated with a State-granted exemption.

Conclusion: The assessee was entitled to the benefit of Notification No. 23/2003-CE and the demand of Special Additional Duty was not sustainable.

Ratio Decidendi: For the purpose of Notification No. 23/2003-CE, exemption from Special Additional Duty is denied only when the goods are actually exempted by a State Government notification or order from sales tax or VAT; absence of such exemption means stock transfer clearances do not forfeit the benefit.

---