Special Additional Duty relief for 100% EOU DTA clearances remains available where VAT is actually paid.

A 100% EOU clearing goods to the domestic tariff area on payment of VAT may exclude Special Additional Duty while computing duty under the exemption notification, because section 3(5) of the Customs Tariff Act is meant to offset sales tax or VAT on imports and the notification operates clearance-wise. A general permission to pay full duties does not displace an otherwise applicable exemption when the VAT condition is satisfied. The assessee was therefore entitled to the notification benefit, and the SAD component could not be added to the duty demand; the related interest and penalty were unsustainable.

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Issues: Whether a 100% EOU clearing goods to the domestic tariff area on payment of VAT is entitled to exclude Special Additional Duty while computing duty by applying the exemption notification.

Analysis: The liability of a 100% EOU making DTA clearances is to pay duty equivalent to the customs duties applicable to similar imported goods, but the applicable exemption notification is not displaced merely because the Development Commissioner's permission speaks of payment of full duties. Section 3(5) of the Customs Tariff Act, 1975 is intended to counterbalance sales tax or VAT on imported goods, and the notification operates clearance-wise. Where VAT is actually paid on the domestic clearance, the SAD component is not required to be included. The prior decisions relied upon, including the Larger Bench view, supported this interpretation and showed that the exemption remains available when the condition regarding non-exemption from sales tax or VAT is satisfied.

Conclusion: The assessee was entitled to the benefit of the exemption notification, the SAD component could not be added to the duty demand, and the demand, interest, and penalty were unsustainable.

Ratio Decidendi: For 100% EOU clearances to the domestic tariff area, exemption from SAD cannot be denied where VAT is paid and the notification condition is satisfied; a general direction to pay full duties does not exclude otherwise applicable exemption notifications.

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