Captive consumption exemption was upheld for clinker supplied to SEZ-linked cement manufacture despite no express SEZ mention.

Exemption under Notification No. 67/95-CE was available for clinker captively consumed in manufacturing cement cleared to SEZ units, because the absence of an express SEZ reference in the proviso could not by itself defeat the benefit where the statutory framework treated the SEZ regime as succeeding the earlier FTZ category. The Tribunal also accepted that the demand was revenue neutral, since any duty paid on the intermediate product would have been available as credit or refund/rebate. On that basis, the demand and penalty were not sustainable and the impugned order was set aside.

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Issues: Whether clinker captively consumed for manufacture of cement cleared to units in a Special Economic Zone remained eligible for exemption under Notification No. 67/95-CE notwithstanding the absence of an express reference to SEZ in the proviso.

Analysis: The exemption under Notification No. 67/95-CE was denied only because the final product was cleared to SEZ units and SEZ was not specifically named in the exclusion clause. The Tribunal followed its earlier view that the omission of SEZ from the proviso could not defeat the exemption, as the earlier Free Trade Zone regime had been replaced by the SEZ regime and the relevant legal framework treated such supplies as equivalent for the purpose of the notification. The Tribunal also accepted the additional ground that the demand on the intermediate product was revenue neutral, since duty, if paid, would have been available as credit or refund/rebate.

Conclusion: The assessee was eligible for exemption under Notification No. 67/95-CE on clinker captively consumed for manufacture of cement cleared to SEZ units without payment of duty. The demand and penalty were not sustainable.

Final Conclusion: The impugned order was set aside and the appeal succeeded.

Ratio Decidendi: An exemption for captive consumption cannot be denied merely because the final clearance is to an SEZ unit when the statutory and notification framework shows that the SEZ regime has replaced the earlier FTZ category and the demand is otherwise revenue neutral.

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