EOU DTA clearances and SAD exemption: excise duty was nil, and the demand failed on limitation.

Where goods cleared by a 100% EOU into the domestic tariff area would be exempt from special additional duty if imported, the excise duty equal to SAD under the proviso to Section 3(1) is nil; the separate conditions of Notification No. 23/2003-CE need not be independently met, and the demand could not stand. The show cause notice was also unsustainable because it was issued after omission of Section 11A(5), the extended period was unavailable on the facts, and the record showed no fraud, suppression, wilful misstatement, or intent to evade duty. The demand was therefore set aside.

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Issues: (i) Whether excise duty equal to special additional duty was payable on the goods cleared into the domestic tariff area by a 100% EOU, and whether exemption under Notification No. 23/2003-CE was available. (ii) Whether the show cause notice invoking Section 11A(1) and Section 11A(5) of the Central Excise Act, 1944 was without jurisdiction and time-barred.

Issue (i): Whether excise duty equal to special additional duty was payable on the goods cleared into the domestic tariff area by a 100% EOU, and whether exemption under Notification No. 23/2003-CE was available.

Analysis: The liability to pay excise duty equal to SAD under the proviso to Section 3(1) of the Central Excise Act, 1944 depended on whether the goods, if imported, would attract SAD. The goods in question were treated as exempt from SAD under the relevant customs notifications, so the duty equal to SAD payable on domestic clearances was nil. On that footing, the separate exemption under Notification No. 23/2003-CE was not required to be satisfied, and the department's objection based on State VAT exemption did not sustain the demand.

Conclusion: The issue was answered in favour of the assessee.

Issue (ii): Whether the show cause notice invoking Section 11A(1) and Section 11A(5) of the Central Excise Act, 1944 was without jurisdiction and time-barred.

Analysis: The notice was issued after the omission of Section 11A(5), and the extended period was in any event not available because the facts were disclosed in the returns, the assessee was under audit, and the department was aware of the exemption position. The record did not disclose fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty, and the demand was also beyond the ordinary limitation period.

Conclusion: The notice and consequent demand were held to be unsustainable.

Final Conclusion: The demand was set aside and the assessee succeeded on both merits and limitation.

Ratio Decidendi: Where the goods, if imported, are exempt from SAD, the excise duty equal to SAD on DTA clearances is nil, and a demand cannot be sustained in the absence of a valid basis for invoking the extended limitation period or alleging suppression or intent to evade.

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