Nil VAT can satisfy the refund condition for special additional duty where the resale is otherwise covered by a valid exemption.

Refund of special additional duty on imported goods remained available where the subsequent resale was covered by a VAT exemption and no VAT was charged. CESTAT applied the refund notification to hold that the requirement of payment of "appropriate sales tax or VAT" is satisfied even when the applicable VAT rate is nil, because the condition turns on the governing tax treatment rather than a minimum tax rate. The Tribunal also relied on departmental clarification that refund is not denied merely because the local tax rate is lower than the additional duty.

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Issues: Whether refund of special additional duty paid on imported goods is admissible when the subsequent sale is covered by a VAT exemption and no VAT is charged, treating nil VAT as payment of appropriate sales tax or VAT under the refund notification.

Analysis: The refund notification requires the importer to pay the appropriate sales tax or VAT on the resale of the imported goods. The Tribunal followed its earlier view that the expression "appropriate sales tax or VAT" is satisfied even where the applicable VAT rate is nil, because the condition is directed to the existence of the applicable tax treatment and not to a minimum rate. The Tribunal also relied on the departmental clarification stating that refund is not to be restricted merely because the VAT or sales tax rate is lower than the additional duty, and that the full refund remains available if the other conditions are met. Since the Rajasthan notification exempted the relevant supplies from VAT, the nil rate was treated as the appropriate VAT for the purpose of the refund condition.

Conclusion: Nil VAT was held to be appropriate sales tax or VAT for the refund notification, and the appellant was held eligible for refund of the special additional duty.

Ratio Decidendi: For refund of special additional duty under the refund notification, the condition of payment of appropriate sales tax or VAT is satisfied even where the applicable VAT rate is nil under an exemption notification.

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