Clarificatory Cenvat amendment to SEZ supply rules applies retrospectively, barring reversal of credit and related demands.

The Special Economic Zones Act, 2005 treats supplies from the Domestic Tariff Area to an SEZ unit or developer as exports and gives that regime overriding effect. An amendment to Rule 6(6)(i) of the Cenvat Credit Rules, 2004, by substitution, was treated as clarificatory and therefore operating from inception. On that basis, supplies made to SEZ developers for authorised operations were outside Rule 6(1), (2), (3) and (4) even for the earlier period, so no reversal of Cenvat credit or payment of the prescribed percentage was required. Once the principal demand failed, interest and penalty also could not survive.

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Issues: Whether the amendment to Rule 6(6)(i) of the Cenvat Credit Rules, 2004 by Notification No. 50/2008-C.E. (N.T.) dated 31.12.2008, which expressly included supplies to SEZ developers, was retrospective and exempted the appellant from reversal of credit and payment under Rule 6(1), (2), (3) and (4) for the period prior to the amendment, with consequential liability for interest and penalty.

Analysis: The provisions of the Special Economic Zones Act, 2005 treat supplies from the Domestic Tariff Area to a Unit or Developer as exports and contain a statutory override under Section 151. The amendment to Rule 6(6)(i) was introduced by substitution and was held to be clarificatory in nature. On that basis, the inclusion of SEZ developers was construed as operative from inception, so that supplies to SEZ developers for authorised operations were outside the ambit of Rule 6(1), (2), (3) and (4) even for the prior period. Once the basic demand was unsustainable, the demand of interest and penalty also could not survive.

Conclusion: The appellant was not required to reverse Cenvat credit or pay 10% of the value of supplies made to SEZ developers for the disputed period, and the demand of interest and penalty was unsustainable.

Final Conclusion: The impugned demand was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: A clarificatory amendment by substitution that expressly extends a Cenvat exemption to SEZ developers operates retrospectively, and supplies to SEZ developers for authorised operations are not liable to reversal under Rule 6(1) to Rule 6(4) of the Cenvat Credit Rules, 2004.

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